Question

Imaging Inc., a developer of radiology equipment, has stock outstanding as follows: 12,000 shares of cumulative preferred 3% stock, $140 par, and 40,000 shares of $10 par common. During its first four years of operations, the following amounts were distributed as dividends: first year, $33,720; second year, $77,080; third year, $90,960; fourth year, $107,200.

Compute the dividends per share on each class of stock for each of the four years. Round all answers to two decimal places. If no dividends are paid in a given year, enter "0".

	1st Year	2nd Year	3rd Year	4th Year
Preferred stock (dividend per share)	$	$	$	$
Common stock (dividend per share)	$	$	$	$

Answer 1

	1st Year	2nd Year	3rd Year	4th Year
Preferred stock (dividend per share)	2.81	5.59	4.20	4.20
Common stock (dividend per share)	-	0.25	1.01	1.42
Preferred dividend per year = (12,000*140)*3% = 50,400
Common stock will get the dividend only when preferred dividend is settled each year
1st Year:-
Dividend paid = 33,720
Preferred dividend = 33,720
Dividend per share = (33,720/12,000) = 2.81
Common stock = 0
2nd year:-
Dividend paid = 77,080
Balance Preferred dividend for 1st year = (50,400-33,720) = 16,680
Preferred dividend for 2nd year = 50,400
Total preferred dividend paid in 2nd year = (16,680+50,400) = 67,080
Dividend per share = (67,080/12,000) = 2.81
Common stock dividend = (77,080-67,080) = 10,000
Dividend per share = (10,000/40,000) = 0.25
3rd year:-
Dividend paid = 90,960
Preferred dividend per share = (50,400/12,000) = 4.20
Common stock dividend per share = (90,960-50,400)/40,000 = 1.01
4th Year
Dividend paid = 107,200
Preferred dividend per share = (50,400/12,000) = 4.20
Common stock dividend per share = (107,200-50,400)/40,000 = 1.42