Obj. 2 -BE 12-1 Dividends per share Zero Calories Company has 15,000 shares of cumulative preferred 1% stock, $50 par and 100,000 shares of $10 par common stock. The following amounts were distributed as dividends: 20Y1 20Y2 $ 28,500 6,000 20Y3 110,000 Determine the dividends per share for preferred and common stock for each year.
Obj. 2 -BE 12-1 Dividends per share Zero Calories Company has 15,000 shares of cumulative preferred 1% stock, $50 par and 100,000 shares of $10 par common stock. The following amounts were distributed as dividends: 20Y1 20Y2 $ 28,500 6,000 20Y3 110,000 Determine the dividends per share for preferred and common stock for each year.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:### Dividends per Share - Example Problem
**Context:**
Zero Calories Company has issued a total of 15,000 shares of cumulative preferred stock at a 1% dividend rate with a $50 par value. Additionally, the company has 100,000 shares of common stock with a $10 par value. The dividends distributed over the following years are specified below:
- **Year 20Y1:** $28,500
- **Year 20Y2:** $6,000
- **Year 20Y3:** $110,000
**Objective:**
Determine the dividends per share for both preferred and common stock for each of the specified years:
**Preferred Stock Calculation:**
1. **Dividend Obligation per Share:** 1% of $50 = $0.50 per share
2. **Total Dividend Requirement:** 15,000 shares x $0.50 = $7,500 annually
**Assessment for Each Year:**
- **20Y1:**
- Total Dividends Distributed: $28,500
- Preferred Requirement: $7,500
- Remainder: $28,500 - $7,500 = $21,000 (common stock)
- **20Y2:**
- Total Dividends Distributed: $6,000
- Preferred Requirement: $7,500
- Shortfall: $7,500 - $6,000 = $1,500 (cumulative into 20Y3)
- **20Y3:**
- Total Dividends Distributed: $110,000
- Remaining Preferred Requirement from 20Y2: $1,500
- Total Preferred for 20Y3: $7,500 + $1,500 = $9,000
- Remainder for Common Stock: $110,000 - $9,000 = $101,000
**Common Stock Calculation:**
- Dividends divided by 100,000 shares determine the dividend per share for common stock for each year.
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This example problem demonstrates how to calculate and allocate dividends for preferred and common shareholders over various fiscal years, considering cumulative preferred stock.
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