Question

The Jumping Jungle has 40,000 shares of $50 par, 2% cumulative preferred stock and 100,000 shares of $25 par common stock. The following amounts were distributed as dividends:

Directions: Fill in the missing blanks in the table below.

	Year 1	Year 2	Year 3
Amount distributed	$15,000	$25,000	$120,000
Preferred dividend (40,000 shares)
Common dividend (100,000 shares)
Dividends per share:
Preferred stock
Common stock
(Current year preferred dividend in arrears)

Answer 1

Cumulative preferred stock are those stock on which if at all dividend are not paid for any year then the unpaid dividend will be paid in the the coming year. They will be given priority before the common stock holders in respect of payment of dividend.

Preferred stock dividend

= 40,000*50*2%

= $40, 000

Year 1

Dividend paid = 15,000

Dividend to preferred stock = $15, 000

Dividend per share = 15,000/40,000 = $ 0.375

Owed to preferred stock = 40,000 - 15,000 = $25, 000

Year 2

Dividend paid = 25,000

Dividend to preferred stock = $25, 000

Dividend per share = 25,000/40,000 = $ 0.625

Owed to preferred stock = Current year ( 40,000 - 25,000) + Previous year 25,000

= 15,000 + 25,000

= 40,000

Year 3

Dividend paid = $120, 000

Dividend to preferred stock = 40,000(current year) + 40,000(owed) = $80, 000

Dividend per share = 80,000/40,000 = $ 2

Dividend to common stock

= 120,000 - 80,000

= $40, 000

Dividend per share = 40,000/100,000 = $ 0.40

No arrears of preferred stock dividend.

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