Question

QUESTION 2

At the beginning of its’ first year, Stone Corp. had the following capital structure:

Preferred shares- 5,000 issued, 6%                         $100,000

Common shares- 8,000 issued                                 $400,000

                                                                                          $500,000

Dividends declared and paid were as follows in its’ first two years: Yr. 1- $5,000; Yr. 2- $41,000

Required:

Prepare a table showing the amount of dividends paid in Yr. 1 and Yr. 2 to each class of shareholder under the following assumptions:

1. The preferred stock is noncumulative and non participating;
2. The preferred stock is cumulative and fully participating;
3. The preferred stock is cumulative and participating after the Common shares receive 8% of their invested capital.

Answer 1

Please find below table useful to compute desired results: -

End results would be as follows: -