Explanation 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, 2018 are as follows: Case A: Preferred stock is noncumulative and total amount of dividend is $12,600: Particulars Preferred (6,000 shares ) $ Common (30,000 shares) .$ Total Preferred (1) 4,800 0 4,800 Balance to common (2) 0 $7,800 7,800 Total 4,800 $7,800 12,600 Dividends per share $0.80 (3) $0.26 (4) Table (1) Working note (1): Calculate the value of preferred stock dividends: Total preferred stock is $60,000 Dividend percentage is 8% Preferred stock dividends = Total preferred stock × Dividend percentage =$60,000 × 8 100 = $ 4 , 800 Working note (2): Calculate the value of common stock dividends: Total dividends (given) is $12,600 Dividend for preferred stockholders (1) is $4,800 Common stock dividends = ( Total value of dividends − Dividend for preferred stockholders ) =$12,600 − $ 4 , 800 = $ 7 , 800 Working note (3): Calculate the preferred dividend per share: Preferred dividend per share = Value of preferred stock dividends (2) Number of preferred shares = $ 4 , 800 6 , 000 shares = $ 0.80 Working note (4): Calculate the common stock dividend per share: Common stock dividend per share = Value of common stock dividends (1) Number of common shares = $ 7 , 800 30 , 000 shares = $ 0.26 Case B: Preferred stock is cumulative and total amount of dividends is $14,400: Particulars Preferred (6,000 shares) $ Common (30,000 shares $ Total $ Arrears (5) 9,600 0 9,600 Current year (6) 4,800 0 4,800 Balance to common 0 0 0 14,400 0 14,400 Dividends per share $2

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FUNDAMENTALS OF FINANCIAL ACCOUNTING

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