Question

Lightfoot Inc., a software development firm, has stock outstanding as follows: 40,000 shares of cumulative preferred 1% stock, $125 par and 100,000 shares of $150 par common. During its first four years of operations, the following amounts were distributed as dividends: first year, $36,000; second year, $58,000; third year, $75,000; fourth year, $124,000.

Answer 1

Answer:

#1 36,000 preferred

#2 58,000 preferred

#3 58,000 preferred //  17,000 common

#4 50,000 preferred // 74,000 common

Explanation:

preferred stock dividends:

40,000 x $125 each x 1% = 50,000

the common stock will take whatever is left after preferred stock.

first year: $ 36,000

asthe preferred stock are cumulative, there is 14,00 dividends in arrears

second year: $ 58,000

we got the 50,00 for the current year plus the 16,000 in arrears

this amount declared is not enough, there are still 8,00 in arrears

third year: $ 75,000

there is 58,000 dividends for preferred stock

the rest goes for common stock

fourth year: $ 124,000

there is no arrears so the preferred only receive the 50,000 and the rest goes for common shares.