Question

ABC Company issued the following when opening business on Jan 1, 2017:

1000 Shares of 4% $50 par value preferred stock for $100000

40000 Shares of 4% $5 par value common stock for $800000 2

017 Reported income: $350000 ---- no dividends paid in 2017

2018 Reported income: $400000 ---- $70000 dividends paid in 2018

How is the dividend divided between common and preferred stockholders if the preferred stock in non-cumulative non-participating? EPS for 2017? EPS for 2017?

How is the dividend divided between common and preferred stockholders if the preferred stock in cumulative non-participating? EPS for 2017? EPS for 2017?

Answer 1

	Answer = A : Preference share is non- Cumulative
	Par Value of Preference Shares = 1,000 Shares X $ 50 =			$                 50,000
	Dividend on par vaue @ 4 % is payable per year			$                   2,000
	Non-Cumulative means the if the preference dividend is not paid in the last year then that shoul not be accumulate
	in next years payment or if not paid in any year then no carry forward as arrier of preference shares
	Year	total Cash Dividend Paid (A)	Paid to Preferred Stock (B)	Paid to Common Shares (A -B)	Dividend in the arreas at the year end	Remarks
	2017	$                               -	$                                                    -	$                          -	$                          -	Preference Shares are non - cumulative so there is no arreas of dividend'
	2018	$                     70,000	$                                             2,000	$                 68,000	$                          -
	TOTAL	$                     70,000	$                                             2,000	$                 68,000	$                          -
	Note: Preferred stock are non-cumulative stock so once not paid then dividend
	no paid in the year will not carry forward to next year so dividend arrears will be Zero
	CALCULATION OF EARNING PER SHARES			2017	2018
	Net Income			$             3,50,000	$             4,00,000
	Less: Preference Dividend Paid				$                   2,000
	Net Balance for Common Shareholders			$             3,50,000	$             3,98,000
	Divide by No. of common shareholders			40000 Shares	40000 Shares
	Earning per shares =			$                     8.75	$                     9.95
	Answer = B : Preference share is Cumulative
	Cumulative means the if the preference dividend is not paid in the last year then that shoul be accumulate
	in next years payment ot it will carry forward as unpaid dividend
	Year	total Cash Dividend Paid (A)	Paid to Preferred Stock (B)	Paid to Common Shares (A -B)	Dividend in the arreas at the year end	Remarks
	2017	$                               -	$                                                    -	$                          -	$                   2,000	No Balance for Common Shares
	2018	$                     70,000	$                                             4,000	$                 66,000	$                          -	Prefrece dividend = $ 2000 X 2 years = $ 4,000
	TOTAL	$                     70,000	$                                             4,000	$                 66,000
	CALCULATION OF EARNING PER SHARES			2017	2018
	Net Income			$             3,50,000	$             4,00,000
	Less: Preference Dividend Paid			$                          -	$                   4,000
	Net Balance for Common Shareholders			$             3,50,000	$             3,96,000
	Divide by No. of common shareholders			40000 Shares	40000 Shares
	Earning per shares =			$                     8.75	$                     9.90