Question

Question 2 B

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

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

NOTE: For cumulative preference shares wether it is fully partisipating or partially partisipating. Arrears of previous years dividends must pay.

For non cumulative preference shares only current year divident is paid. If profits are available