Riverbed Company has outstanding 2,700 shares of $100 par, 7% preferred stock and 14,200 shares of...

Riverbed Company has outstanding 2,700 shares of $100 par, 7% preferred stock and 14,200 shares of $10 par value common. The following schedule shows the amount of dividends paid out over the last 4 years.

Allocate the dividends to each type of stock under assumptions (a) and (b). Express your answers in per-share amounts using the format shown below. (Round the rate of participation to 4 decimal places, e.g.1.4278%. Round answers to 2 decimal places, e.g. $6.85.)

		Assumptions
		(a) Preferred, noncumulative, and nonparticipating		(b) Preferred, cumulative, and fully participating
Year	Paid-out	Preferred	Common	Preferred	Common
2018	$13,500	$	$	$	$
2019	$26,300	$	$	$	$
2020	$52,800	$	$	$	$
2021	$71,100	$	$	$	$

Solutions

Expert Solution

Year	Paid-out ($)	Assumption (a) Preferred ($)	Assumption (a) Common ($)	Assumption (b) Preferred ($)	Assumption (b) Common ($)
2018	13500	5 (13500 / 2700 shares)	-	5 (13500 / 2700 shares)	-
2019	26300	7 (18900 / 2700 shares)	0.5211 [(26300 - 18900) / 14200 shares]	9 [{18900 - 13500) + 18900] / 2700 shares]	0.1408 [(26300 - 24300) / 14200 shares]
2020	52800	7 (18900 / 2700 shares)	2.3873 [(52800 - 18900) / 14200 shares]	12.8155 (Working note - 4)	1.2816 (Working note - 5)
2021	71100	7 (18900 / 2700 shares)	3.6761 [(71100 - 18900) / 14200 shares]	17.2573 (Working Note - 6)	1.7257 (Working Note - 7)

Notes:
1- Preference dividend = (2700 shares X $100 X 7%) = $18900
2- For cumulative shares, unpaid dividend of one year, will be carried forward to next year and will be paid first before any dividend is paid to common shareholders.
3- For participating preferred shares, first common shares will be paid based on preferred dividend rate. After that remaining dividend will be distributed between preferred and common shareholders based on share in total capital.
4- For $52800 dividend, participating dividend = [$52800 - $18900 - $9940 (14200 X $10 X 7%)] = $23960
So, Total preferred dividend = [$18900 + ($23960 / $412000 total capital) X $270000 preferred capital] / 2700 preferred shares = $12.8155
5- Common dividend = [$9940 + ($23960 / $412000 total capital) X $142000 common capital] / 14200 common shares = $1.2816
6- For $71100 dividend, participating dividend = [$71100 - $18900 - $9940 (14200 X $10 X 7%)] = $42260
So, Total preferred dividend = [$18900 + ($42260 / $412000 total capital) X $270000 preferred capital] / 2700 preferred shares = $17.2573
7- Common dividend = [$9940 + ($42260 / $412000 total capital) X $142000 common capital] / 14200 common shares = $1.7257

(If there are any questions, kindly let me know in comments. If the solution is to your satisfaction, a thumbs up would be appreciated. Thank You)

ekkarill92 answered 1 year ago

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