Question

Dividends Per Share Windborn Company has 20,000 shares of cumulative preferred 3% stock, $100 par and 50,000 shares of $20 par common stock. The following amounts were distributed as dividends: Year 1 $120,000 Year 2 30,000 Year 3 180,000 Determine the dividends per share for preferred and common stock for each year. Round all answers to two decimal places. If an answer is zero, enter '0'. Year 1 Year 2 Year 3 Preferred stock (Dividends per share) $ $ $ Common stock (Dividends per share) $ $ $

Answer 1

				Year 1	Year 2	Year 3
Preferred stock (Dividends per share)				$               3.00	$         1.50	$           4.50
Common stock (Dividends per share)				$               1.20	0	$           1.80
Working:
Dividend on preferred shares are paid before common stocks.
In case of cumulative preferred stocks, if in any year dividend is not paid in full, then balance dividend is added to next years dividend,
In next year when dividend is declared then total dividend along with previous years unpaid dividend is paid to preferred stock and
then remaining dividends are paid to common stockholders.
Dividend on preferred Stock			=	20,000	x	$            100	x	3%	=	$       60,000
Now, Payment of dividend in each year is calculated as follows:
Year 1:
Total Dividend				$       1,20,000
Less dividend on preferred stock				$           60,000
Dividend to common stockholders				$           60,000
Year 2:
Total Dividend				$           30,000
Less dividend on preferred stock				$           30,000
Unpaid dividend of preferred stock				$           30,000
As total of $ 60,000 dividend is paid to preferred stock each year.
Year 3:
Total Dividend						$ 1,80,000
Less:Unpaid dividend to preferred stock					$     30,000
Less Dividend to preferred stock for current Year					$     60,000	$      90,000
Dividend paid to Common Stockholders						$      90,000
After paying dividend to Preferred stockholders, all remaining dividend is paid to common stockholders.
Sumarized:
					Year 1	Year 2	Year 3
Dividend to Preferred stockholders					$     60,000	$      30,000	$     90,000
Dividend to Common stockholders					$     60,000	0	$     90,000
Total					$ 1,20,000	$      30,000	$ 1,80,000
Now,
Preferred Stock:					Year 1	Year 2	Year 3
Dividend to Preferred stockholders					$     60,000	$      30,000	$     90,000
/ Number of shares					20,000	20,000	20,000
Dividend Per Share					$         3.00	$           1.50	$         4.50
Common Stock
					Year 1	Year 2	Year 3
Dividend paid					$     60,000	0	$     90,000
/Number of shares					50,000	50,000	50,000
Dividend Per Share					$         1.20	0	$         1.80