Chapter 10, Problem 10.11S

(Learning Objective 4: Divide cash dividends between preferred and common stock) Alloy Corporation has 25,000

shares of $1.40 preferred stock outstanding in addition to its common stock. The $1.40 designation means that the preferred

stockholders receive an annual cash dividend of $1.40 per share. In 2018, Alloy declares an annual dividend of $500,000. The

allocation to preferred and common stockholders is:

Preferred dividend (25,000 shares × $1.40 per share)................	$ 35,000
Common dividend (remainder: $500,000 – $35,000)..........	465,000
Total dividend............................................................................	$500,000

Answer these questions about Alloy’s cash dividends.

1. 1. How much in dividends must Alloy declare each year before the common stockholders receive any cash dividends for the year?
2. 2. Suppose Alloy declares cash dividends of $200,000 for 2018. How much of the dividends goes to preferred shareholders? How much goes to common shareholders?
3. 3. Is Alloy’s preferred stock cumulative or noncumulative? How can you tell?
4. 4. Alloy passed the preferred dividend in 2017 and 2018. Then in 2019, Alloy declares cash dividends of $800,000. How much of the dividends goes to preferred shareholders? How much goes to common shareholders?