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Cheyenne Corp. had $120,000 of 8%, $20 par value preferred stock and 15,000 shares of $5...

Cheyenne Corp. had $120,000 of 8%, $20 par value preferred stock and 15,000 shares of $5 par value common stock outstanding throughout 2018. No dividends were paid in 2016 or 2017. Determine the dividend amount that should go to common and preferred shareholders for the following scenarios.

Assuming that total dividends declared in 2018 were $70,000, and that the preferred stock is not cumulative and is not participating.
Common Shareholders’ Dividends
Preferred Shareholders’ Dividends
Assuming that total dividends declared in 2018 were $70,000, and that the preferred stock is cumulative and is not participating.
Common Shareholders’ Dividends
Preferred Shareholders’ Dividends
Assuming that total dividends declared in 2018 were $70,000, and that the preferred stock is not cumulative and is fully participating.
Common Shareholders’ Dividends
Preferred Shareholders’ Dividends

d. Assuming that total dividends declared in 2018 were $70,000, and that the preferred stock is cumulative and is fully participating.
Common Shareholders’ Dividends
Preferred Shareholders’ Dividends

Expert Solution

If the preferred stock is cumulative, dividends not paid in earlier years must also be paid before anything is paid out to common stockholders.

If the preferred stock is participating, after both preferred and common stock holders receive a specified level of dividends, balance dividend distributions are shared with common stockholders in the ratio of the respective par values of participating preference stock and common stock.

Number of preferred shares = $120,000 / $20 = 6,000

Preferred stock dividends = 6,000 shares * $20 par * 8% = $9,600

Common stock dividends = 15,000 shares * $5 par * 8% = $6,000

a.

Common shareholder's dividends = $9,600

Preferred shareholder's dividends = $70,000 - $9,600 = $60,400

b.

Common shareholder's dividends = $9,600 * 3 = $28,800

Preferred shareholder's dividends = $70,000 - $28,800 = $41,200

c.

Common shareholder's dividends = $9,600 + ($70,000 - $9,600 - $6,000) * 6,000 / 21,000 = $25,143

Preferred shareholder's dividends = $6,000 + ($70,000 - $9,600 - $6,000) * 15,000 / 21,000 = $44,857

d.

Common shareholder's dividends = $28,800 + ($70,000 - $28,800 - $6,000) * 6,000 / 21,000 = $38,857

Preferred shareholder's dividends = $6,000 + ($70,000 - $28,800 - $6,000) * 15,000 / 21,000 = $31,143

ekkarill92 answered 3 months ago

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