Question

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
Year	Dividends	Total	Per Share	Total	Per Share
1	$5,250	$	$	$	$
2	7,000	$	$	$	$
3	36,770	$	$	$	$

Answer 1

		Preferred		Common
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