Question

Analyzing Cash Dividends on Preferred and Common Stock Everett Company has outstanding 30,000 shares of $50 par value, 6% preferred stock and 70,000 shares of $1 par value common stock. During its first three years in business, it declared and paid no cash dividends in the first year, $310,000 in the second year, and $90,000 in the third year. (a) If the preferred stock is cumulative, determine the total amount of cash dividends paid to each class of stock in each of the three years. Distibution to Preferred Common Year 1 $ Answer $ Answer Year 2 $ Answer $ Answer Year 3 $ Answer $ Answer (b) If the preferred stock is noncumulative, determine the total amount of cash dividends paid to each class of stock in each of the three years. Distibution to Preferred Common Year 1 $ Answer $ Answer Year 2 $ Answer $ Answer Year 3 $ Answer $ Answer

Answer 1

			Number of shares	Par Value	Total Value	Interest @ 6% Per year on preferred shares
	Peferred Capital =		30000	$                         50	$                15,00,000	$                                                          90,000
	Common Share Capital =		70000	$                           1	$                      70,000
	Cumulative means the if the preference dividend is not paid in the last year then that shoul be accumulate
	in next years payment ot it will carry forward as unpaid dividend
	IF THE PREFERENCE SHARES ARE CUMULATIVE
	Year	total Cash Dividend Paid (A)	Paid to Preferred Stock (B)	Paid to Common Shares (A -B)	Dividend in the arreas	Remarks
	Year1	$                               -	$                                                    -	$                          -	$                90,000.00	$ 90,000 will be arrears as prefenrece shares are cumulative
	Year2	$            3,10,000.00	$                                 1,80,000.00	$       1,30,000.00	$                               -	$ 90,000 for the first year and $ 90,000 for the second year
	Year3	$               90,000.00	$                                     90,000.00	$                          -	$                               -	First we have to paid to Preference shareholders so paid
	Dividend per share = Dividend/ Total outstanding shares
			Preferred	Common
	Total Outstanding shares =		30000	70000
	Dividend per share for Year 1=		$                                                    -	$                          -
	Dividend per share for Year 2=		$                                               6.00	$                     1.86
	Dividend per share for Year 3 =		$                                               3.00	$                          -
	IF THE PREFERENCE SHARES ARE NON CUMULATIVE
	Year	total Cash Dividend Paid (A)	Paid to Preferred Stock (B)	Paid to Common Shares (A -B)	Dividend in the arreas	Remarks
	Year1	$                               -	$                                                    -	$                          -	$                               -	No Arrears as non cumlative
	Year2	$            3,10,000.00	$                                     90,000.00	$       2,20,000.00	$                               -
	Year3	$               90,000.00	$                                     90,000.00	$                          -	$                               -	First we have to paid to Preference shareholders so paid
	Dividend per share = Dividend/ Total outstanding shares
			Preferred	Common
	Total Outstanding shares =		30000	70000
	Dividend per share for Year 1=		$                                                    -	$                          -
	Dividend per share for Year 2=		$                                               3.00	$                     3.14
	Dividend per share for Year 3 =		$                                               3.00	$                          -