**Educational Explanation of Dividend Allocation Between Classes of Shareholders****Context:**Stockholders' equity of Ernst Company consists of:- 89,000 shares of $5 par value, 9% cumulative preferred stock- 325,000 shares of $1 par value common stockBoth classes of stock have been outstanding since the company’s inception. Ernst did not declare any dividends in the prior year, but it now declares and pays a $140,000 cash dividend at the current year-end.**Objective:**Determine the amount distributed to each class of stockholders for this two-year-old company.**Table Explanation:**The table provided outlines the calculation for the preferred dividend allocation:- **Par Value per Preferred Share**: The nominal value of each preferred share.- **Dividend Rate (%)**: The percentage of the par value that is paid out as a dividend.- **Dividend per Preferred Share**: The actual dollar value of the dividend per preferred share, calculated using the par value and the dividend rate.- **Number of Preferred Shares**: Total shares of preferred stock outstanding.- **Preferred Dividend for Two Years**: Since the stock is cumulative, the preferred dividend needs to cover two years’ worth of arrears.**Dividend Allocation:**- **Total Cash Dividend**: $140,000- **Amount to Preferred Shareholders**: Based on the cumulative rate for two years.- **Amount to Common Shareholders**: Remaining dividend after paying preferred shareholders.This allocation process ensures that cumulative preferred shareholders receive back payments from any missed dividends in previous years before any dividends are paid to common stockholders.

Dividend - Dividend is the amount declared by the company from the accumulated profit earned by it. Cumulative and non cumulative dividend shall be declared by the company to the preference shareholders. Cumulative Dividends are those dividend which are required to be paid to the preference shareholders compulsory. Non Cumulative are those dividend that are not compulsory to be paid if company fails to pay in any year.1. Amount distributed to each class of Stockholders - Dividend per Share = $5 per Share X 9% = $0.45 per Share Preferred Dividend for 2 Years = $0.45 per Share X 89,000 Shares X 2 Years = $80,100.