Question

Keener Company has had 900 shares of 6%, $100 par preferred stock and 42,000 shares of $5 stated value common stock outstanding for the last 3 years. During that period, dividends paid totaled $3,900, $22,500, and $27,600 for each year, respectively. Required: Compute the amount of dividends that Keener must have paid to preferred shareholders and common shareholders in each of the 3 years, given the following 3 independent assumptions:

1. Preferred stock is nonparticipating and noncumulative.

Keener Company
Schedule of Dividends

Preferred Common Total
Year 1 Year 2 Year 3

2. Preferred stock is nonparticipating and cumulative.

Keener Company
Schedule of Dividends

Preferred Common Total
Year 1 Year 2 Year 3

3. Preferred stock is fully participating and cumulative.

Keener Company
Schedule of Dividends

Preferred Common Total
Year 1 Year 2 Year 3

Answer 1

1. Preferred stock in nonparticipating and noncumulative

Keener Company
Schedule of Dividends
	Preferred	Common	Total
Year 1	3900	0	3900
Year 2	5400	17100	22500
Year 3	5400	22200	27600

Preferred dividend = 6% x $100 x 900 = $5400

2. Preferred stock in nonparticipating and cumulative

Keener Company
Schedule of Dividends
	Preferred	Common	Total
Year 1	3900	0	3900
Year 2	6900	15600	22500
Year 3	5400	22200	27600

3. Preferred stock is fully participating and cumulative

Keener Company
Schedule of Dividends
	Preferred	Common	Total
Year 1	3900	0	3900
Year 2	7800	14700	22500
Year 3	8280	19320	27600

Working:

Year 2	Total Cash Dividend Paid	Preferred	Common
Fully participating and cumulative	22500
Preferred dividend arrears	-1500	1500
$5400 - $3900
Preferred dividend-current year	-5400	5400
6% x $100 x 900
Common dividend	-12600		12600
6% x $5 x 42000
Balance remaining (pro-rata on par value)	3000	900	2100
		7800	14700

Pro-rata distribution:
Preferred par value (900 x $100)	90000
Common par value (42000 x $5)	210000
Total par value $	300000
Rate of participation ($3000/$300000)	1.00%
Preferred dividend	900
($90000 x 1.00%)
Common dividend	2100
($210000 x 1.00%)
Total $	3000

Year 3	Total Cash Dividend Paid	Preferred	Common
Fully participating and cumulative	27600
Preferred dividend arrears	0	0
Preferred dividend-current year	-5400	5400
6% x $100 x 900
Common dividend	-12600		12600
6% x $5 x 42000
Balance remaining (pro-rata on par value)	9600	2880	6720
		8280	19320

Pro-rata distribution:
Preferred par value (900 x $100)	90000
Common par value (42000 x $5)	210000
Total par value $	300000
Rate of participation ($9600/$300000)	3.20%
Preferred dividend	2880
($90000 x 3.20%)
Common dividend	6720
($210000 x 3.20%)
Total $	9600