In: Accounting
A company had stock outstanding as follows during each of its first three years of operations: 1,000 shares of 7%, $100 par, cumulative preferred stock and 51,000 shares of $10 par common stock. The amounts distributed as dividends are presented below. Determine the total and per-share dividends for each class of stock for each year by completing the schedule. Round dividends per share to the nearest cent. Enter "0" if no dividends are paid.
Preferred |
Common |
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Year |
Dividends |
Total |
Per Share |
Total |
Per Share |
1 | $5,250 | $ | $ | $ | $ |
2 | 7,000 | $ | $ | $ | $ |
3 | 36,770 | $ | $ | $ | $ |
Preferred |
Common |
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Years |
Dividends |
Total |
Per Share |
Total |
Per Share |
1 |
$5,250 |
$5,250 |
$5.25 |
0 |
0 |
2 |
$7,000 |
$7,000 |
$7.00 |
0 |
0 |
3 |
$36,770 |
$8,750 |
$8.75 |
$28,020 |
$0.55 |
Explanation:
Total annual preferred dividend = No. of preferred shares x dividend rate x par value
= 1,000 x 0.07 x $ 100
= $ 7,000
Dividend distribution year 1:
Dividend paid on year 1 = $ 5,250
Dividend per share = Total dividend paid/No. of shares
Preferred dividend per share = $ 5,250/1,000 = $ 5.25
Arrears dividend for preferred shares in year 1 = $ 7,000 - $ 5,250 = $ 1,750
As there is shortage of dividend payment for preferred stocks, no dividend is paid to common stocks.
Dividend distribution year 2:
Total dividend to be paid for preferred stocks = $ 1,750 + $ 7,000 = $ 8,750
Dividend paid on year 2 = $ 7,000
Preferred dividend per share = $ 7,000/$ 1,000 = $ 7
As there is shortage of dividend payment for preferred stocks, no dividend is paid to common stocks.
Dividend distribution year 3:
Total dividend to be paid for preferred stocks = $ 1,750 + $ 7,000 = $ 8,750
Dividend per preferred stocks = $ 8,750/1,000 = $ 8.75
Total dividends paid for common stocks = $ 36,770 - $ 8,750 = $ 28,020
Dividend per common stocks = $ 28,020/51,000 = $ 0.54941 or $ 0.55