Question

The shareholders’ equity of ILP Industries includes the items shown below. The board of directors of...

The shareholders’ equity of ILP Industries includes the items shown below. The board of directors of ILP declared cash dividends of $10 million, $15 million, and $120 million in its first three years of operation—2018, 2019, and 2020, respectively.

(In Millions)

Common stock $100

Paid-in capital—excess of par, common 800

Preferred stock, 8% 200

Paid-in capital—excess of par, preferred 520

Determine the amount of dividends to be paid to preferred and common shareholders in each of the three years, assuming that the preferred stock is cumulative and nonparticipating.

Homework Answers

Answer #1

year

Cash
dividend
Declared

Preferred
Dividends

Common
dividend

2018

10

10

0

2019

15

15

0

2020

120

23

97

Working notes for the above answer is as under

1

Cumulative preferred stock dividend for the year

=200x8%

=$16

In the year company should paid preferred stock dividend 16 million if it is not paid in the year then it will be paid in subsequent year

Year

Preferred
Dividends
Required

Paid

Outstanding

2018

16

10

6

(16-10)

2019

22

(16+6)

15

7

(22-15)

2020

23

(16+7)

23

0

Common stock will be paid dividend what remains after paying preferred stock so in the year 2020 common stock dividend =120-23 =$97 million

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