Question

The records of Hoffman Company reflected the following balances in the stockholders’ equity accounts at December 31, 2015:

  Common stock, par $12 per share, 40,500 shares outstanding.

  Preferred stock, 8 percent, par $11 per share, 6,010 shares outstanding.

  Retained earnings, $221,000.

On January 1, 2016, the board of directors was considering the distribution of a $62,100 cash dividend. No dividends were paid during 2014 and 2015.

Required:
1.	Determine the total and per-share amounts that would be paid to the common stockholders and to the preferred stockholders under two independent assumptions:

a.	The preferred stock is noncumulative. (Round "Per Share" to 2 decimal places and rest to the nearest dollar amount.)

	Total	Per Share
Paid to the Preferred Stockholders	$5,289	$0.88
Paid to the Common Stockholders	$56,811	$1.40

b.	The preferred stock is cumulative. (Round "Per Share" to 2 decimal places and rest to the nearest dollar amount.)

	Total	Per Share
Paid to the Preferred Stockholders
Paid to the Common Stockholders

2.

Why were the dividends per share of common stock less for the cumulative preferred stock than the noncumulative preferred stock?

	The dividends in arrears on the preferred stock had to be fulfilled before dividends could be paid for the current year.
	The dividend rate for preferred stockholders was increased.

3.

What factors would cause a more favorable dividend for the common stockholders? (Select all that apply.)

The preferred dividends were not in arrears.checkbox unchecked1 of 6 The preferred dividends were not cumulative.checkbox unchecked2 of 6 The total dividend distribution was increased.checkbox unchecked3 of 6 The preferred dividends were in arrears.checkbox unchecked4 of 6 The preferred dividends were cumulative.checkbox unchecked5 of 6 The total dividend distribution was decreased.checkbox unchecked6 of 6

Answer 1

	Req 1A
					total	per share
	Paid to Preferred Shareholders				5289	0.88
	Paid to the common shareholders				56811	1.40
	Req 1B
					total	per share
	Paid to Preferred Shareholders				15866	2.64
	Paid to the common shareholders				46234	1.14
	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