Question

Sandpiper Company has 10,000 shares of cumulative preferred 2% stock, $100 par and 50,000 shares of $30 par common stock. The following amounts were distributed as dividends: Year 1 $40,000 Year 2 10,000 Year 3 60,000 Determine the dividends per share for preferred and common stock for each year. Round all answers to two decimal places. If an answer is zero, enter '0'.

Answer 1

Answer:

Year 1:

Dividend per common share: $0.4

Dividend per preferred share: $2

Year 2:

Dividend per common share: $0

Dividend per preferred share: $1

Year 1:

Dividend per common share: $0.6

Dividend per preferred share: $3

Explanation:

Year 1:

Dividend has to be paid to preferred stocks = 2% x 100 x 10,000 = $20,000 => Dividend per one preferred stock = 20,000/10,000 = $2

Dividend left to be paid to common share = (40,000-20,000) = $20,000 => Dividend per one common share = 20,000/50,000 = $0.4

Year 2:

Dividend has to be paid to preferred stocks = 2% x 100 x 10,000 = $20,000; Dividend actual paid-out = $10,000 => Dividend per one preferred stock = 10,000/10,000 = $1 & the other $1 per share will be paid later.

Dividend left to be paid to common share = 0

Year 3:

Dividend has to be paid to preferred stocks = 2% x 100 x 10,000 = $20,000 => Dividend per one preferred stock = 20,000/10,000 = $2. This plus $1 dividend per share payable from Y2 making the Dividend per one preferred stock paid out in Y3 = $3 => Total dividend paid to preferred stock = 3 x 10,000 =$30,000

Dividend left to be paid to common share = (60,000-30,000) = $30,000 => Dividend per one common share = 30,000/50,000 = $0.6

Answer 2

Answer:

Year 1

$ 40.000  - Total Dividends

$ 20.000 - Preferred Stockholers

$ 20.000  - Common Stockholers

Year 2

$ 10.000  - Total Dividends

$ 10.000 - Preferred Stockholers

$ 0           - Common Stockholers

Year 3

$ 60.000  - Total Dividends

$ 30.000 - Preferred Stockholers

$ 30.000  - Common Stockholers

Total

$ 60.000 Preffered Stockholers

$ 50.000 Common Stockholers

Explanation:

First it's necessary to said that the preferred stockholders have a higher claim to dividends than common stock, it means that each time that the company paid dividends, the one corresponding to Preffered Stockholers must be paid first and if one year there are not enough dividends to pay then they must be paid the next year along with the dividends of next year, it's a kind of guaranteed dividend.

Total Dividends to Preferred Stockholders        

10.000  Shares    

2%    percent of par value    

$100 Par Value    

Total Dividends: 10,000 * 2% * $100 = $ 20.000 of Dividend each year.    

Preferred dividends for preferred stock.    

$ 20.000    

Total Dividends to be paid by the company each year    

Year 1       Year 2      Year 3  

$ 40.000 $ 10.000   $ 60.000  

$ 20.000 $ 10.000   $ 30.000 Preffered Stockholers  

$ 20.000                         $ 30.000 Common Stockholers