Chapter 18, Problem 18.9P

Effect o f preferred stock characteristics on dividends

• LO18–7

The shareholders’ equity of Kramer Industries includes the data shown below. During 2019, cash dividends of $150 million were declared. Dividends were not declared in 2017 or 2018.

	($ in millions)
Common stock	$200
Paid-in capital—excess of par, common	800
Preferred stock, 10%, nonparticipating	100
Paid-in capital—excess of par, preferred	270

Required:

Determine the amount of dividends payable to preferred shareholders and to common shareholders under each of the following two assumptions regarding the characteristics of the preferred stock.

Assumption A —The preferred stock is noncumulative.

Assumption B —The preferred stock is cumulative.