Question

A corporation was organized on January 1 and issued the following shares of stock: 1) 2,500 shares of $100 par value, 8% non-participating preferred stock. 2) 20,000 shares of $20 par value common stock. All shares were issued and outstanding throughout the next three years. The corporation declared and paid a cash dividend in each of those years as follows: Year 1 - $25,000 Year 2 - $8,000 Year 3 - $75,000

Calculate the dividends paid to each class of stock in each of those years assuming the preferred stock is CUMULATIVE. Use the matrix format listed below. Be sure to show your supporting calculations and label them to indicate which numbers in the matrix they are supporting. Preferred Total Preferred dividends Common Dividend dividends carried forward dividends paid Year Declared paid this year to next year this year 1 $25,000 2 $8,000 3 $75,000

Answer 1

Preference Dividend = 2500 x $100 x 8% = $20000

	Total Dividend	Preference Dividend	Common Dividend
Year 1	$            25,000	$           20,000	$           5,000
Year 2	$              8,000	$             8,000	$                 -
Year 3	$            75,000	$           20,000	$         55,000
	Total	$           48,000	$        60,000

	Total Dividend	Preference Dividend	Common Dividend	Dividend Carried forward
Year 1	$            25,000	$           20,000	$           5,000
Year 2	$              8,000	$             8,000	$                 -	$         12,000
Year 3	$            75,000	$           32,000	$         43,000
	Total	$           60,000	$        48,000