Question

The shareholders' equity of Nick Co. includes the items shown below. The board of directors of Nick declared cash dividends of $4 million, $8 million, and $50 million in each of its first 3 years of operation: 2016, 2017, and 2018, respectively.

Preferred stock, 6%, at a total value of $100,000,000 Required:

Determine the amount of dividends given to preferred and common shareholders during each of the three years. The preferred stock is cumulative and nonparticipating.

6%*100,000,000=6m-2m=4m

	Dividends paid	Preferred shares	Common shares
2016	4 million
2017	8 million
2018	50 million

Answer 1

Answer:

	Dividend Paid	Preferred Share	Common Shares
2016	4 Million	4M	0
2017	8 Million	8M	0
2018	50 Million	6M	44M

Explanation:

1) Preferred Stock is Cumulative which means, 6%× 100,000,000 = 6M is payable every year out of the pocket, but if in any year its not paid, than it is accumulated and paid in the future.

2) In the 2016,4M is paid so, entire amount would be paid to pref.share .As the name suggests, preferred i.e. preference is given to them over common stock.

3) In the 2017 8M is paid to preferred share ( 6M + 2M in arrears of 2016) so ,again common share holder are given nothing.

4) In 2018, total 50M is paid so out of this amount 6M is paid to pref. Share holder and remaining amount i.e 44M ( 50 - 6) is paid to common share holder.