Question

Dividends per share

Imaging Inc., a developer of radiology equipment, has stock outstanding as follows: 20,000 shares of cumulative preferred 4% stock, $140 par, and 67,000 shares of $15 par common. During its first four years of operations, the following amounts were distributed as dividends: first year, $75,000; second year, $159,000; third year, $188,290; fourth year, $199,770.

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".

Year 1 Year 2 Year 3 Year 4  

Preferred Stock

Common Stock

Answer 1

Dividend per share
Preferred stock	3.75	7.45	3.75	5.6
Common stock	0	0.15	1.14	1.31

Dividend per share is obtained by dividing the total dividing paid to respective stock with respective number of shares. That is divided with 20000 for preferred stock dividend per share and with 67000 shares in case of common stock.

Explanation

Following working are basic for above solution

	1	2	3	4
Total dividend distributed	75000	159000	188290	199770
Preferred stock dividend (payable)	112000	149000	112000	112000
Preferred stock dividend (paid)	75000	149000	112000	112000
common stock dividend (paid)	0	10000	76290	87770

(1) Total dividend distributed is given in the question.

(2) Preferred stock dividend ( payable ) = 20000 * 140 * 4% = 112000. But dividend distributed in year-1 is only 75000. Thus preferencial basis implies it will be Dividend paid to preferred stock, thus nothing remains payable to common stock. As preferred stock is cumulative, the balane ( 112000 - 75000 = 37000 adds to subsequent years dividend liability. Thus we have Dividend payable to preferred stock = 112000 + 37000 = 149000 in the year - 2

( 3) In the year - 2 ,,,,,,,,, Amount of dividend distributed was 159000, out of which preffered stock shall get priority paymet of current dividend 112000 + arrears of dividend of year - 1 37000 making a total of 149000 dividend paid to preferred stock. Thus there remains a balance of 10000 which will be paid to common stock.

(4) In the year - 3 we have dividend distributed 188290 is more than what is payable to preferred stock. Hence the fixed dividend of 112000 shall be paid to preferred stock and balance 76290 shall be paid to common stock.