Question

Dividends Per Share

Imaging Inc., a developer of radiology equipment, has stock outstanding as follows: 24,000 shares of cumulative preferred 1% stock, $120 par, and 80,000 shares of $20 par common. During its first four years of operations, the following amounts were distributed as dividends: first year, $19,200; second year, $48,400; third year, $85,120; fourth year, $153,600.

Compute the dividends per share on each class of stock for each of the four years. Round all answers to two decimal places. If no dividends are paid in a given year, enter "0".

	1st Year	2nd Year	3rd Year	4th Year
Preferred stock (dividend per share)	$	$	$	$
Common stock (dividend per share)	$	$	$	$

Answer 1

The dividend is paid first to the Preferred stock holders and if anything is left out i.e., the residual amount is distributed to common stock holders. It should be noted that cumulative preferred stock holders have the right to receive dividend for the previous year in which dividends are not distributed. Even if there are adequate profits in a year preferred stock can receive only to the maximum extent of their eligibilty.

Dividend per share formula: Dividend distributed / Number of shares

Based on the above provision we can calculate the dividend per share for both common stock and preferred stock:

Year 1: In first year the dividend distributed amount is $19,200. The actual dividend attributable to preferred stock holders is 24000 x 120 x 1% = $28,800. But dividend distributed is only $19200 so whole amount is distributed to preferred stock holders. So the dividend per share of Preferred stock is $19200/24000 = $0.8. As no dividend is distributed to common stock holders thier dividend per share is 0.

Year 2: Preferred stock dividend is not paid fully in Year 1. So they have right to receive dividend this year to the extent not received in last year. So their total receivable dividend is $38400 ($28800-$19200 = $9600) + ($24000 x 120 x 1% = 28800) So the dividend per preferred stock is $38400/24000 = $1.6. The remaining dividend of $10,000($48400-$38400) is distributed to common stock holders. So their dividend per share is $10000/80000 = $0.13

Year 3: Preferred dividend to be received is $28800. So their dividend per share is $28800/24000 = $1.2. The remaining of $56320 ($85120-$28800) is distributed to common stock holders. So their Dividend per share is $56320/80000 = $0.70

Year 4: Preferred dividend to be received is $28800. So their Dividend per share is $28800/24000 = $1.2. The remaining of $124800 ($153600-$28800) is distributed to common stock holders. So their dividend per share is $124800/80000 = $1.56.

Summary Table:

Particulars	1st year	2nd year	3rd year	4th year
Preferred stock(dividend per share)	$0.8	$1.6	$1.2	$1.2
Common stock(dividend per share)	0	$0.13	$0.7	$1.56

PS: Please use "Thums Up" If you are contended with my solution and presentation.