Chapter 11, Problem 11.4PB

To determine

The total amount of cash dividend and dividend per share for each of given cases at December 31, 2015.

Explanation of Solution

Cash dividends:

The amount of cash provided by a corporation out of its distributable profits to its stockholders as a return for the amount invested by them is referred as cash dividends.

The total amount of cash dividend and dividend per share for each of given cases at December 31, 2015 are as follows:

Case A: Preferred stock is noncumulative and total amount of dividend is $30,000:

Particulars	Preferred (19,000 shares) $	Common (490,000 shares) .$	Total
Preferred (1)	15,200	0	15,200
Balance to common (2)	0	8,800	8,800
Total	15,200	$8,800	24,000
Dividends per share	$0.80 (3)	$0.02 (4)

Table (1)

Working note:

Calculate the value of preferred stock dividends:

Here,

Total preferred stock is $190,000

Dividend percentage is 8%

$\begin{array}{c}\text{Preferred stock dividends = Total preferred stock }\times \text{ Dividend percentage}\\ \text{=\$190,000}\times \frac{8}{100}\\ =\$15,200\end{array}$ (1)

Calculate the value of common stock dividends:

Here,

Total dividends (given) is $24,000

Dividend for preferred stockholders (1) is $15,200

$\begin{array}{c}\text{Common stock dividends = }\left(\begin{array}{l}\text{Total value of dividends}-\\ \text{Dividend for preferred stockholders}\end{array}\right)\\ \text{=\$24,000}-\$15,200\\ =\$8,800\end{array}$ (2)

Calculate the preferred dividend per share:

$\begin{array}{c}\text{Preferred dividend per share = }\frac{\text{Value of preferred stock dividends (1)}}{\text{Number of preferred shares}}\\ =\frac{\$15,200}{19,000\text{ shares}}\\ =\$0.80\end{array}$ (3)

Calculate the common stock dividend per share:

$\begin{array}{c}\text{Common stock dividend per share = }\frac{\text{Value of common stock dividends (1)}}{\text{Number of common shares}}\\ =\frac{\$8,800}{490,000\text{ shares}}\\ =\$0.02\end{array}$ (4)

Case B: Preferred stock is cumulative and total amount of dividends is $30,000:

Particulars	Preferred (19,000 shares) $	Common (490,000 shares $	Total $
Arrears (5)	24,000	0	24,000
Current year	0	0	0
Balance to common	0	0	0
	24,000	0	24,000
Dividends per share	$1.43 (6)	0

Table (2)

Working note:

Calculate the preferred stock dividends arrear for 2 years:

Here,

Total preferred stock is $190,000

Dividend percentage is 8%

Arrear period is 2 years

$\begin{array}{c}\text{Preferred stock dividends (arrears)= }\left(\begin{array}{l}\text{Total preferred stock }\times \text{ Dividend percentage }\times \\ \text{ Arrear period}\end{array}\right)\\ \text{=\$190,000}\times \frac{8}{100}\times 2\text{years}\\ =\$30,400\end{array}$

$\begin{array}{l}\begin{array}{l}\text{Total amount of divdiends = \$24,000}\\ \text{Calculated dividends = \$30,400}\end{array}\}\text{Whichever is less}\\ \text{Total amount of arrears dividends = \$24,000}\end{array}$ (5)

Note: Calculated dividends should not more than the total amount of dividends.

Calculate the preferred dividend per share:

$\begin{array}{c}\text{Preferred dividend per share = }\frac{\left(\text{Value of preferred stock dividends (arrears) (5)}\right)}{\text{Number of preferred shares}}\\ =\frac{\$24,000}{19,000\text{ shares}}\\ =\$1.26\end{array}$ (6)

Case C: Preferred stock is cumulative and total amount of dividends is $67,000:

Particulars	Preferred (6,000 shares)	Common (30,000 shares)	Total
Arrears (7)	$30,400	0	$30,400
Current year (1)	15,200	0	15,200
Balance to common (8)	0	$21,400	24,600
	$45,600	$21,600	$67,000
Dividends per share	$2.40 (9)	$0.04 (10)

Table (3)

Calculate the preferred stock dividends arrear for 2 years:

Here,

Total preferred stock is $190,000

Dividend percentage is 8%

Arrear period is 2 years

$\begin{array}{c}\text{Preferred stock dividends (arrears)= }\left(\begin{array}{l}\text{Total preferred stock }\times \text{ Dividend percentage }\times \\ \text{ Arrear period}\end{array}\right)\\ \text{=\$190,000}\times \frac{8}{100}\times 2\text{years}\\ =\$15,200\end{array}$ (7)

Calculate the value of common stock dividends:

Here,

Total dividends (given) is $67,000

Dividend for preferred stockholders is $45,600 $\left(\$30,400+\$15,200\right)$

$\begin{array}{c}\text{Common stock dividends = }\left(\begin{array}{l}\text{Total value of dividends}-\\ \text{Dividend for preferred stockholders}\end{array}\right)\\ \text{=\$67,000}-\$45,600\\ =\$21,400\end{array}$ (8)

Calculate the preferred dividend per share:

$\begin{array}{c}\text{Preferred dividend per share = }\frac{\left(\text{Value of preferred stock dividends }\right)}{\text{Number of preferred shares}}\\ =\frac{\$45,600}{19,000\text{ shares}}\\ =\$2.40\end{array}$ (9)

Calculate the common stock dividend per share:

$\begin{array}{c}\text{Common stock dividend per share = }\frac{\text{Value of common stock dividends (8)}}{\text{Number of common shares}}\\ =\frac{\$21,400}{490,000\text{ shares}}\\ =\$0.04\end{array}$ (10)