Question

Raphael corporation common stock is currently selling it stock exchange at 194 per share, and its current balance sheet shows the following stockholders equity section:
Preferred stock - 5% cumulative, $_par value, 1000 shares authorized, issued, and outstanding =75,000

Common stock $_par value, 4,000 authorize, issued, and outstanding =180,000

Retain Earnings =390,000

Total stockholders equity =645,000

If two years preferred dividends are in arears and the board of directors declare cash divided of 22,500, what total amount will be paid to the preferred and to the common stockholders?.

Total amount paid to the preferred shareholders.

Total amount paid to the common shareholders.

What is the amount of dividends per share for the common stock?

Dividend per share - - -

Answer 1

If two years of preferred dividends is in arrear and company now pay $22500 cash dividend
Total amount paid to preferred shareholder			11250
=75000*5%*2 years in arrears		7500
=75000*5%*1 for current year		3750
Total preferred dividend		11250
Total amount paid to common stockholder
=Cash dividend-preferred dividend as above
=22500-11250			11250
The amount of dividend per share for common stock
Dividend per share		=11250/4000
	=	2.8125
Note : In the absense of any period given in the question, we have assumed that preferred
dividend of past two years were in arrears and current year's preferred dividends is also due.
Alternatively we can assume that Two years of preferred dividend were in arrear which also
include the current year. In this case our calculation will be as follows
Total amount paid to preferred shareholder			7500
=75000*5%*2 years in arrears		7500
Total amount paid to common stockholder
=Cash dividend-preferred dividend as above
=22500-7500			15000
The amount of dividend per share for common stock
Dividend per share		=15000/4000
	=	3.75
You can verify both the above answer.
Thank You