Question

E11-10 Computing Dividends on Preferred Stock and Analyzing Differences [LO 11-3, LO 11-4] The records of Hoffman Company reflected the following balances in the stockholders’ equity accounts at December 31, 2018:     Common stock, par $12 per share, 48,000 shares outstanding. Preferred stock, 8 percent, par $15.5 per share, 7,510 shares outstanding. Retained earnings, $236,000. On January 1, 2019, the board of directors was considering the distribution of a $63,600 cash dividend. No dividends were paid during 2017 and 2018. Required: Determine the total and per-share amounts that would be paid to the common stockholders and to the preferred stockholders under two independent assumptions: The preferred stock is noncumulative. The preferred stock is cumulative. Why were the dividends per share of common stock less for the cumulative preferred stock than the noncumulative preferred stock? What factors would cause a more favorable dividend for the common stockholders?

Answer 1

	Req 1A
					total	per share
	Paid to Preferred Shareholders				9312	1.24
	Paid to the common shareholders				54288	1.13
	Req 1B
					total	per share
	Paid to Preferred Shareholders				27937	3.72
	Paid to the common shareholders				35663	0.85
	Req 2
	the dividend in arrears on the preferred stock had to be fulfilled before
	dividends could be paid for the current year
	Req 3
	the preferred dividend were not in arrears
	the preferred dividends were not cumulative
	the total dividend distribution was increased