Bonita Company has outstanding 2,600 shares of $100 par, 7% preferred stock and 16,400 shares of...

Bonita Company has outstanding 2,600 shares of $100 par, 7% preferred stock and 16,400 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	$26,400	$	$	$	$
2020	$62,000	$	$	$	$
2021	$83,200	$	$	$	$

Expert Solution

Year	Paid out ($)	Assumption (a) Preferred ($)	Assumbtion (a) Common ($)	Assumption (b) Preferred ($)	Assumption (b) Common ($)
2018	13500	5.19 (13500 / 2600 shares)	-	5.19 (13500 / 2600 shares)	-
2019	26400	7.00 (18200 / 2600)	0.50 [(26400 - 18200) / 16400 shares]	8.81 [18200 + (18200 - 13500)] / 2600 shares	0.21 (3500 / 16400 shares)
2020	62000	7.00 (18200 / 2600 shares)	2.67 (62000 - 18200) / 16400 shares	14.62 (Working Note - 4)	1.46 (Working Note- 5)
2021	83200	7.00 (18200 / 2600 shares)	3.96 (83200 - 18200) / 16400 shares	19.62 (Working Note- 6)	1.96 (Working Note- 7)

Working Notes:
1- For cumulative shares, unpaid dividend of previous years will be carried forward to next year and will be paid off first before any dividends are paid to common shareholders.
2- Preference dividend = (2600 shares X $100 X 7%) = $18200
3- Participating preference shares, will get dividend in excess of preference dividend rate paid to common shareholders for participation ratio decided
4- Amount available for participation = [$62000 - $18200 - $11480 (16400 shares X $10 X 7%)] = 32320
Per share preference dividend including participating dividend = [$18200 + ($32320 / $424000 total capital) X $260000 preference capital] / 2600 preference shares = $14.62
5- Per share common dividend including participating dividend = [$11480 + ($32320 / $424000 total capital) X $164000 Common capital] /16400 Commone shares = $1.46
6- Amount available for participation = [$83200 - $18200 - $11480 (16400 shares X $10 X 7%)] = 53520
Per share preference dividend including participating dividend = [$18200 + ($53520 / $424000 total capital) X $260000 preference capital] / 2600 preference shares = $19.62
7- Per share common dividend including participating dividend = [$11480 + ($53520 / $424000 total capital) X $164000 Common capital] /16400 Commone shares = $1.96

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ekkarill92 answered 2 years ago

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