Question

Windborn Company has 30,000 shares of cumulative preferred 1% stock, $50 par and 50,000 shares of $25 par common stock. The following amounts were distributed as dividends:

Year 1	$30,000
Year 2	6,000
Year 3	45,000

Determine the dividends per share for preferred and common stock for each year. Round all answers to two decimal places. If an answer is zero, enter '0'.

Answer 1

Solution : -

Calculate total dividends to each class for each year, then divide each class by the number of shares in the class to get the dividends per share paid to each class.

Wind born Company has 30,000 shares of 1% cumulative preferred stock of $50 par and 50,000 shares of $25 par common stock.

Dividend due on preferred stock = $50 * 30,000 * 0.01 = $15,000 each year.

If not paid in full each year, the unpaid amount carries over and is added to the amount due the following year BEFORE the common shareholders receive any dividends. This is the nature of CUMULATIVE preferred shares.

Year 1 : - $30,000

15,000 to Preferred "P", Per share dividend on preference share capital = 15,000 / 30,000 = $0.50 per share

15,000 to common "C" , Per share dividend on common share capital = 15,000 / 50,000 = $0.30 per share

Year 2 :- $6,000

15,000 to P , Carry forward (15,000 – 6,000) = $9,000,

Per share dividend on preference share capital = 6,000 / 30000 = $0.2 per share

$0 paid to C ,

Year 3 $45,000

.Due to P : 9,000 + 15,000 = 24,000 ,

Per share dividend on preference share capital = 24,000 / 30,000 = $0.8 per share

leaving ( 45,000 – 24,000) = 21,000 for C ,

Per share dividend on common share capital = 21,000 / 50,000 = $0.42 per share .

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