Question

York’s outstanding stock consists of 90,000 shares of 6.5% preferred stock with a $5 par value and also 100,000 shares of common stock with a $1 par value. During its first four years of operation, the corporation declared and paid the following total cash dividends: 2015 total cash dividends $ 18,100 2016 total cash dividends 27,200 2017 total cash dividends 255,000 2018 total cash dividends 405,000 rev: 11_29_2018_QC_CS-149901 Determine the amount of dividends paid each year to each of the two classes of stockholders assuming that the preferred stock is cumulative. Also determine the total dividends paid to each class for the four years combined.

Answer 1

Year	Total	Preferred	Common
2015	18,100	18,100	0
2016	27,200	27,200	0
2017	255,000	42,450	212,550
2018	405,000	29,250	375,750

Annual preferred dividend = 90,000 x 5 x 6.5% = $29,250

For the first two years, less than that will be paid to preferred shareholders but as it is cumulative, the preferred shareholders will earn the balance in 2017.

Preferred dividend in 2017 = 29,250 + (29,250 - 18,100) + (29,250 - 27,200) = 42,450

Common dividends = Total - Preferred