Question

Dividends Per Share

Seventy-Two Inc., a developer of radiology equipment, has stock outstanding as follows: 80,000 shares of cumulative preferred 3% stock, $20 par and 405,000 shares of $25 par common.

During its first four years of operations, the following amounts were distributed as dividends: first year, $34,000; second year, $75,000; third year, $90,000; fourth year, $120,000.

Determine 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 "0.00"

Answer 1

Preference Dividend = 80000 Shares * $ 20 * 3% = $ 48000

Year 1

Total Dividends = $ 34000

Preference Dividends = $ 34000 [ Note 1]

Preference Dividends in Arrears = $ 48000 - $ 34000 = $ 14000

Dividend to Common Shareholders = $ 0 ( As full Dividend is already ditributed to Preferred shareholders )

Dividend per share = Total Dividends Distributed / No. of shares

Class of Stock	Dividends Distributed (A)	No. of Shares (B)	Dividend per share (A/B)
Preferred Shareholders	$ 34000	80000	$ 0.43
Common Shareholders	$ 0	405000	$ 0.00

Year 2

Total Dividends = $ 75000

Preference Dividends = $ 48000 + $ 14000 (Arrears ) = $ 62000 [ Note 2]

Dividend to Common Shareholders = $ 75000 - $ 62000 = $ 13000

Dividend per share = Total Dividends Distributed / No. of shares

Class of Stock	Dividends Distributed (A)	No. of Shares (B)	Dividend per share (A/B)
Preferred Shareholders	$ 62000	80000	$ 0.78
Common Shareholders	$ 13000	405000	$ 0.03

Year 3

Total Dividends = $ 90000

Preference Dividends = $ 48000

Dividend to Common Shareholders = $ 90000 - $ 48000 = $ 42000

Dividend per share = Total Dividends Distributed / No. of shares

Class of Stock	Dividends Distributed (A)	No. of Shares (B)	Dividend per share (A/B)
Preferred Shareholders	$ 48000	80000	$ 0.60
Common Shareholders	$ 42000	405000	$ 0.10

Year 4

Total Dividends = $ 120000

Preference Dividends = $ 48000

Dividend to Common Shareholders = $ 120000 - $ 48000 = $ 72000

Dividend per share = Total Dividends Distributed / No. of shares

Class of Stock	Dividends Distributed (A)	No. of Shares (B)	Dividend per share (A/B)
Preferred Shareholders	$ 48000	80000	$ 0.60
Common Shareholders	$ 72000	405000	$ 0.18

Note 1 :- Prefered shareholders get a fixed amount of dividend . They will get preference in receiving dividends over Common Shareholders.

Note 2 :- When the prefered stock are cumulative , then all preferred dividends in must be paid before common shareholders receive any dividends.