Question

Wilson Corporation issued and has outstanding 134,400 shares of $10 par-value common stock and 2,800 shares of $70 par-value 20 percent preferred stock. The board of directors votes to distribute $4,200 as dividends in 2016, $7,000 in 2017, and $308,000 in 2018.

Compute the total dividend and the dividend for each share paid to preferred stockholders and common stockholders each year under the following assumed situations.

  

Case A: The preferred stock is nonparticipating and noncumulative. (Round your per share answers to 2 decimal places.)

Year Total Dividends Preferred Stock Common Stock Total Per Share Total Per Share 2016 2017 2018

Case B: The preferred stock is cumulative and nonparticipating. (Round your per share answers to 2 decimal places.)

Year Total Dividends Preferred Stock Common Stock Total Per Share Total Per Share 2014 2015 2016

Analyze:

If a stockholder purchased 330 shares of cumulative preferred stock in 2016, what total dividends should be paid to this stockholder in the fiscal year 2018, assuming Case B?

Answer 1

Solution Case A:

Since preferred stock is non-cumulative, therefore Arrears of dividend will not be carried dorward and dividend distributable will be first allocated to preferred dividend upto their rate of dividend and balance if any will be allocated to Common stock.

Maximum dividend for Preferred stock = 2800 *70*20% = $39,200

Allocation of dividend to Preferred Stock (Non Cumulative) and Common stock
Year	Total Dividends	Preferred Stock		Common Stock
		Total	Per Share	Total	Per Share
2016	$4,200.00	$4,200.00	$1.50	$0.00	$0.00
2017	$7,000.00	$7,000.00	$2.50	$0.00	$0.00
2018	$308,000.00	$39,200.00	$14.00	$268,800.00	$2.00

Solution Case B:

Since preferred stock is cumulative, therefore Arrears of dividend will be carried forward and dividend distributable will be first allocated to preferred dividend upto their rate of dividend + Arrears of Dividend and then balance if any will be allocated to Common stock.

Arrears of Preferred Dividend At the end of 2017 = Arrears of 2017+ Arrears of 2016 =($39200-$4200) + ($39200-7000) = $67200

Preferred dividend to be paid in 2018 = current dividend + Arrears of Dividend = $39200+$67200 = $106,400

Allocation of dividend to Preferred Stock (Non Cumulative) and Common stock
Year	Total Dividends	Preferred Stock		Common Stock
		Total (Including Arrears if any)	Per Share	Total	Per Share
2016	$4,200.00	$4,200.00	$1.50	$0.00	$0.00
2017	$7,000.00	$7,000.00	$2.50	$0.00	$0.00
2018	$308,000.00	$106,400.00	$38.00	$201,600.00	$1.50

Solution Case C:

Preferred dividend to be paid per share = 70*20% = $14 per share

Preferred Dividend due each year = 330 shares* 14 = $4620

Divident to be paid in 2018 = current year dividend + Arrears of 2016 + Arrears of 2017

= $4620 + [330*($14 - $1.5)] + [330*($14 - $2.50)]

=4620 + 4125 + 3795

= $12540