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In: Accounting

Complete the table for dividend allocation. Mommie Dearest Company began operations in 2015. Mommie Dearest Company...

Complete the table for dividend allocation.

Mommie Dearest Company began operations in 2015.

Mommie Dearest Company has the following stock outstanding for 2015 and 2016:

Common Stock

Preferred Stock (Cumulative)

50,000 shares outstanding

10,000 shares outstanding

$1 par value

$60 par, $6/share dividend rate

Preferred

Common

Year

Total Dividends Declared

Total

Per Share

Total

Per Share

2015

40,000

2016

90,000

Solutions

Expert Solution

Years Total Dividend Declared Preference    Common
Total Per share Total Per share
2015 40000 40000 4 - -
2016 90000 60000 6 30000 0.6

This is due to, preference shareholders give first priority over the equity shareholders, this is bcz the only return they get is dividend from this kind of investment.

So, we need to issue upto maximum dividend that is alloted to declare to preference, the rest of the dividend will allocated to equity holders.

1. In the 2015,the total dividend declared is only $40000, the maximum dividend that can a preference holder can get is $6 per share i.e., $60000. So, the maximum dividend is alloted to preference holders is $40000 which leads to $4 per each holder

2.where as in 2016 ,the total dividend declared is $90000, which exceeds the maximum dividend to preference holder, the rest is allocated to equity holders. So, preference holder will get $6 per share, where as equity holder will get $0.6 per share ( I.e.,$30000/50000shares )

ekkarill92 answered 2 years ago
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