Question

Baker Company has common and preferred stock outstanding as follows. Common stock: 100,000 shares, $30 par value 8 percent preferred stock: 10,000 shares, $100 par value Dividends on preferred stock have not been paid for the last three years (in addition to the current year).

a. If the company pays a total of $120,000 in dividends, how much will the common stockholders receive per share if the preferred stock is not cumulative? (Round your answer to 2 decimal places.)

b. How will your answer differ if the preferred stock is cumulative?

a. Common dividend per share:

b. Common dividend per share:

Answer 1

Working Notes:
				Interest @ 8% Per year on preferred shares
Peferred Capital = 10,000 Shares 8% of $ 100 Each =			$                    10,00,000	$                          80,000
Solution : A
Non-Cumulative means the if the preference dividend is not paid in the last year then that shoul not be accumulate
in next years payment or if not paid in any year then no carry forward as arrier of preference shares
	total Cash Dividend Paid (A)	Paid to Preferred Stock (B)	Paid to Common Shares (A -B)	Preference Dividend in the arreas
	$                       1,20,000	$                                  80,000	$                          40,000	$                                    -
	Answer = Common Stockherder's Per Shares Dividend = $ 80,000 / 100,000 Shares = $ 0.80 Per Shares
Solution : B
Cumulative means the if the preference dividend is not paid in the last year then that shoul be accumulate
in next years payment ot it will carry forward as unpaid dividend
Year	total Cash Dividend Paid (A)	Paid to Preferred Stock (B)	Paid to Common Shares (A -B)	Preference Dividend in the arreas
1st Year	$                                    -	$                                           -	$                                   -	$                    80,000.00
2nd Year	$                                    -	$                                           -	$                                   -	$                 1,60,000.00
3rd Year	$                                    -	$                                           -	$                                   -	$                 2,40,000.00
Current Year	$                       1,20,000	$                              1,20,000	$                                   -	$                 1,20,000.00
	Answer =
	Commer Dividend Per Shares =   Nil