Chapter 18, Problem 18.10E

To determine

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

Common stock: These are the ordinary shares that a corporation issues to the investors in order to raise funds. In return, the investors receive a share of profit from the profits earned by the corporation. The dividend payments are not guaranteed and are paid after the payment made to the preferred stockholders.

Preferred stock: The stock that provides a fixed amount of return (dividend) to its stockholder before paying dividends to common stockholders is referred as preferred stock.

A preferred stock may be cumulative and non-cumulative. A cumulative preferred stock implies that a preferred stockholder is entitled to receive dividends for the current year plus any unpaid dividends of the previous years, before the dividends paid to the common stockholders.

To determine: The total dividends to be paid to preferred and common stockholders in each of the 3 years (Treat preferred stock as cumulative and non-participating stock).