Question

Required information

[The following information applies to the questions displayed below.]

Raphael Corporation’s common stock is currently selling on a stock exchange at $189 per share, and its current balance sheet shows the following stockholders’ equity section:

  

Preferred stock—5% cumulative, $___ par value, 1,000 shares authorized, issued, and outstanding	$	65,000
Common stock—$___ par value, 4,000 shares authorized, issued, and outstanding		120,000
Retained earnings		350,000
Total stockholders’ equity	$	535,000

6.1 If two years’ preferred dividends are in arrears and the board of directors declares cash dividends of $20,700, what total amount will be paid to the preferred and to the common shareholders?

Required information

[The following information applies to the questions displayed below.]

Raphael Corporation’s common stock is currently selling on a stock exchange at $189 per share, and its current balance sheet shows the following stockholders’ equity section:

  

Preferred stock—5% cumulative, $___ par value, 1,000 shares authorized, issued, and outstanding	$	65,000
Common stock—$___ par value, 4,000 shares authorized, issued, and outstanding		120,000
Retained earnings		350,000
Total stockholders’ equity	$	535,000

6.1 If two years’ preferred dividends are in arrears and the board of directors declares cash dividends of $20,700, what total amount will be paid to the preferred and to the common shareholders?

6.2 What is the amount of dividends per share for the common stock? (Round your answer to two decimal places.)

6.2 What is the amount of dividends per share for the common stock? (Round your answer to two decimal places.)

Answer 1

1. As 2 years' preferred dividends are in arrears for cumulative preferred stock, the board of directors must make payment of preferred dividend in arrears, then remaining will be payable to common stock.

Total Cash dividends declared = $ 20,700

Preferred dividend in arrears for first year (65,000*5%) = 3,250

  Preferred dividend in arrears for Second year (65,000*5%) = 3,250

Total amount paid to preferred shareholders as dividend = $ 6,500

Total amount paid to common shareholders as dividend (20,700 - 6,500) = $ 14,200

2. Total amount of dividend for common stock = $ 14,200

Number of common stock outstanding = 4,000 share

Dividend per share for the common stock (14,200 / 4,000) = 3.55 per share

(Total dividend to common stock / number of common stock outstanding)