Question

x corporation pay dividends at the end of the year . The dividends that it paid for 2012 2013 and 2014 were $160,000 1$120,000 and $360,000 respectively . calculate the total amount of dividends x corporation paid in each of the years to its common and preferred

stockholders under the following capital

structure.

20,000 shares of $100 par, 7 percent cumulative preferred stock and 120,000 shares of $10 par common stock .

x corporation had no dividends in arrears at the beginning of 2012

please show step by step

Answer 1

2012: total amount of dividend for -

common stockholders = $20000

Preferred stockholders = $140000

Order of payment		Total amount of dividend	calculations
1st	preferred stock	$140000	20000 × $100 × 7%
2nd	common stock	$20000	$160000-$140000

At the end of 2012 , no arrears for preferred stock as total of 7% dividend paid.

2013: total amount of dividend for -

Common stockholders = $0

Preferred stockholders = $120000

Order of payment		Total amount of dividend	calculations
1st	preferred stock	$120000	total dividend to be paid is $140000 , but only $120000 is paid
2nd	common stock	$0	as preferred stock is not paid completely, common stock holders are not paid.

At the end of 2013, there is $20000 ($140000-$120000) arrears for preferred stockholders.

2014: total amount of dividend for -

Common stockholders = $160000 ($20000+$140000)

Preferred stockholders = $200000

Order of payment		Total dividend	calculations
1st	preferred stock : arrears of 2013	$20000
2nd	Preferred stock : current year	$140000	20000×$100×7%
3rd	commmon stock	$200000	$360000-$20000-$140000

Note : when the preferred shares are cumulative then the previous year arrears are paid in next year in which dividend is declared.