Question

The Sears Company has equity in the form of common and preferred stock. Sears has 10,000 outstanding shares of $100 par value cumulative preferred stock with a stated dividend percentage of 5%. Sears also has 100,000 shares of common stock outstanding. The net income of Sears for the years 2013-2017 is given. For each year, find the amount of the preferred stock dividend (if any), the dividends in arrears (if any), and the earnings per common share (if any).

2013: $80,000 net income

2014: $10,000 net income

2015: $120,000 net income

2016: $0 net income

2017: $60,000 net income

YEAR Preferred Divided in current year Prefereed Divided in arrears (end of year) Earning per common share

2013 ___________________________ _______________________________ _____________________

2014   ___________________________ _______________________________ _____________________

2015 ___________________________ _______________________________ _____________________

2016   ___________________________ _______________________________ _____________________

Answer 1

	Preferred dividend are cumulative preferred dividend which means if in any year minimum amount of 5% is not paid to preferred dividend same will be carried forward to next year
	Number of preferred share =			10000
	Per share par value=			100
	Preferred dividend =			50000
	10000*100*5%
			2013	2014	2015	2016	2017
i	Net income		$80,000	$10,000	$120,000	$0	$60,000
	Preferred dividend
iii	Preferred dividend in year		50000	10000	90000	$0	60000
iv	Carried over (in arrear)		0	40000	0	50000	40000
v=i-iii	remaining profit		$30,000	$0	$30,000	$0	$0
vi	Number of common share		100000	100000	100000	100000	100000
vii=v/vi	EPS		$     0.30	$          -	$      0.30	$          -	$          -
	Let me know if you need further details on this.