Question

Pecan Theatre Inc. owns and operates movie theaters throughout Florida and Georgia. Pecan Theatre has declared the following annual dividends over a six-year period: Year 1, $80,000; Year 2, $90,000; Year 3, $150,000; Year 4, $150,000; Year 5, $160,000; and Year 6, $180,000. During the entire period ended December 31 of each year, the outstanding stock of the company was composed of 250,000 shares of cumulative, preferred 2% stock, $20 par, and 500,000 shares of common stock, $15 par. Required: 1. Determine the total dividends and the per-share dividends declared on each class of stock for each of the six years. There were no dividends in arrears at the beginning of Year 1. Summarize the data in tabular form. If required, round your answers to two decimal places. If the amount is zero, please enter "0".

Answer 1

Answer:

Year      Dividend                2% Cumulative Preferred     Common Stock

             Declared                          Dividends                       Dividends

                                                Total         Per Share        Total        Per Share

Year 1         $80,000               $100,000      $0.40           0                    0

Year 2        $90,000               $100,000      $0.40           0                    0

Year 3       $150,000               $100,000      $0.40         $20,000      $0.04

Year 4       $150,000               $100,000      $0.40         $50,000      $0.10

Year 5       $160,000               $100,000      $0.40         $60,000      $0.12  

Year 6       $180,000               $100,000      $0.40         $80,000      $0.16

Explanation:

Cumulative, Preferred Stock attracts fixed dividend every year, whether profit is made or not, and whether dividend is declared or not.  In any year when there is no dividend declared, the dividend due to cumulative preferred stock is accumulated and paid whenever dividend is declared.  And the holders of cumulative prefered stock take precedence in receiving dividends.

Preferred Stock is a class of stock that attracts fixed dividend based on percentage.  They have preference with respect to dividend before the Common Stock  and in the sharing of company resources.  There are many variants.  Some are cumulative and others are non-cumulative.  Some are participatory while others are not.