Question

Analyzing Cash Dividends on Preferred and Common Stock
Everett Company has outstanding 30,000 shares of $50 par value, 6% preferred stock and 70,000 shares of $1 par value common stock. During its first three years in business, it declared and paid no cash dividends in the first year, $310,000 in the second year, and $90,000 in the third year.

(a) If the preferred stock is cumulative, determine the total amount of cash dividends paid to each class of stock in each of the three years.

	Distibution to
	Preferred	Common
Year 1	$Answer	$Answer
Year 2	$Answer	$Answer
Year 3	$Answer	$Answer

(b) If the preferred stock is noncumulative, determine the total amount of cash dividends paid to each class of stock in each of the three years.

	Distibution to
	Preferred	Common
Year 1	$Answer	$Answer
Year 2	$Answer	$Answer
Year 3	$Answer	$Answer

Answer 1

a) if preferred stock is cumulative
Statementshowing Computations
Paticulars	Year 1	Year 2	Year 3
Total Dividend Paid	-	310,000.00	90,000.00
Preference Dividend to be paid = 30,000*50*6%	90,000.00	90,000.00	90,000.00
Preference Dividend Paid = Existing + arrears	-	180,000.00	90,000.00
Dividend available for common stock	-	130,000.00	-
Arrears of preference Dividend	90,000.00	-	-
b) preferred stock is non cumulative
Paticulars	Year 1	Year 2	Year 3
Total Dividend Paid	-	310,000.00	90,000.00
Preference Dividend Paid = Existing + arrears	-	90,000.00	90,000.00
Dividend available for common stock	-	220,000.00	-