Chapter 13, Problem 13.8SE

Dividing cash dividends between preferred and common stock

Platinum Trust has the following classes of stock:

Preferred Stock-3%, $14 Par Value; 7,000 shares authorized, 5,500 shares issued and outstanding

Common Stock-$0.20 Par Value; 2,250,000 shares authorized, 1,650,000 shares issued and outstanding

Requirements

1. Platinum declares cash dividends of $20,000 for 2016. How much of the dividends goes to preferred stockholders? How much goes to common stockholders?

2. Assume the preferred stock is cumulative and Platinum passed the preferred dividend in 2014 and 2015. In 2016, the company declares cash dividends of $50,000. How much of the dividend goes to preferred stockholders? How much goes to common stockholders?

3. Assume the preferred stock is noncumulative and Platinum passed the preferred dividend in 2014 and 2015. In 2016, the company declares cash dividends of $50,000. How much of the dividend goes to preferred stockholders? How much goes to common stockholders?