Question

Lightfoot Inc., a software development firm, has stock outstanding as follows: 15,000 shares of cumulative preferred 4% stock, $20 par, and 19,000 shares of $100 par common. During its first four years of operations, the following amounts were distributed as dividends: first year, $4,500; second year, $7,500; third year, $39,010; fourth year, $63,110.
Calculate the dividends per share on each class of stock for each of the four years.

Answer 1

Answer:

Dividend Payment per unit

Year     Common Dividend  Preferred Dividend

1.                        0                                $0.3

2.                        0                                $0.5

3.                        $0.79                        $1.6

4.                        $2.69                        $0.8

Explanation:

Dividend distributed to preferred share is based on the predetermined rate associated with these share. When the dividend is declared preferred share dividend is paid first. The remainder is distributed between the common stockholders.

Value of Preferred share = 15,000 shares x $20 par value = $300,000

Dividend on Preferred share = $300,000 x 4% = $12,000 per year = $12,000 / 15,000 = $0.8 per share

Dividend Payment

Year  Dividend Declared   Common Dividend  Preferred Dividend

1.           $4,500                              0                         $4,500

2.           $7,500                               0                        $7,500

3.           $39,010                      $15,010                     $24,000

4.           $63,110                       $51,110                      $12,000

Dividend Payment per unit

Year     Common Dividend  Preferred Dividend

1.                        0                       $4,500 / 15,000=$0.3

2.                        0                       $7,500 / 15,000=$0.5

3.    $15,010/19,000 = $0.79      $24,000 / 15,000=$1.6

4.    $51,110/19,000 = $2.69       $12,000 / 15,000=$0.8

Working

Year  Dividend Declared   Common Dividend  Preferred Dividend Balance

1.           $4,500                              0                    ( 4,500 - 12,000) = ( 7,500)

2.           $7,500                               0         (-7,500+7,500-12,000) = (12,000)

3.           $39,010                      $15,010    (-12,000+39,010-12,000) = 0

4.           $63,110                       $51,110                     (63,110-12,000) = 0