Chapter 11, Problem 10E

Computing Dividends on Preferred Stock and Analyzing Differences

The records of Hoffman Company reflected the following balances in the stockholders’ equity accounts at December 31, 2018:

Common stock, par $12 per share, 40,000 shares outstanding.

Preferred stock, 8 percent, par $10 per share, 6,000 shares outstanding.

Retained earnings, $220,000.

On January 1, 2019, the board of directors was considering the distribution of a $62,000 cash dividend. No dividends were paid during 2017 and 2018.

Required:

1. 1. Determine the total and per-share amounts that would be paid to the common stockholders and to the preferred stockholders under two independent assumptions:
   1. a. The preferred stock is noncumulative.
   2. b. The preferred stock is cumulative.
2. 2. Briefly explain why the dividends per share of common stock were less for the second assumption.
3. 3. What factors would cause a more favorable dividend for the common stockholders?