Question

Imaging Inc., a developer of radiology equipment, has stock outstanding as follows: 16,000 shares of cumulative preferred 4% stock, $150 par, and 53,000 shares of $15 par common. During its first four years of operations, the following amounts were distributed as dividends: first year, $64,320; second year, $137,680; third year, $168,850; fourth year, $191,930.

Compute the dividends per share on each class of stock for each of the four years. Round all answers to two decimal places. If no dividends are paid in a given year, enter "0".

	1st Year	2nd Year	3rd Year	4th Year
Preferred stock (dividend per share)	$	$	$	$
Common stock (dividend per share)	$	$	$	$

Answer 1

When any dividend is declared by a company, it is paid first to the preferred stockholders and then, the balance amount is paid to the common stockholders.
If the preferred stock is cumulative in nature and dividend has not been declared in the previous years, the dividend on these stocks becomes payable in the future years as the same is declared.
Note 1: Annual dividend to which the preferred stockholders are entitled = $96,000 (16,000 shares x $150 par value per share x 4%)
Particulars	Year 1	Year 2	Year 3	Year 4
Dividend declared (A)	$64,320	$137,680	$168,850	$191,930
Dividend to which the preferred stock holders are entitled (Refer Note 1 above) - (B)	$96,000	$96,000	$96,000	$96,000
Dividend in arrears from past years paid out of dividend declared in the current year (C)	$0	$31,680 ($96,000 - $64,320)	$0	$0
Preferred dividend out of the declared dividend (for the current year) - (D)	$64,320	$96,000	$96,000	$96,000
Total preferred dividend (C + D)	$64,320	$127,680	$96,000	$96,000
Dividend for the common stock holders (A - C - D)	$0	$10,000	$72,850	$95,930
Dividend per share
Preferred Dividend	$64,320	$127,680	$96,000	$96,000
Dividend per share = Preferred dividend / 16,000 shares	$4.02	$7.98	$6.00	$6.00
Common stock dividend	$0	$10,000	$72,850	$95,930
Dividend per share = Common stock dividend / 53,000 shares	$0.00	$0.19	$1.37	$1.81