Question

Sheffield Corp. was organized on January 1, 2021. During its first year, the corporation issued 2,500 shares of $50 par value preferred stock and 150,000 shares of $10 par value common stock. At December 31, the company declared the following cash dividends: 2021, $5,500; 2022, $12,300; and 2023, $27,200.
Show the allocation of dividends to each class of stock, assuming the preferred stock dividend is 5% and noncumulative.

Answer 1

Answer:

                 Preferred stock Dividend               Common stock dividend

2021             $5500                                                       $0

2022            $6250                                                       $6050

2021             $6250                                                       $20950

Explanation:

Th dividends are distributed by the firm from he Net Income and are first paid to the preferred stockholders. The dividends paid to preferred stockholders remain constant and any dividend available after paying the preferred stockholders is paid to the common stockholders.

The  preferred stock is non cumulative which means that if the company fails to pay full dividends or pays no dividends in a particular year to preferred stockholders, those dividends will not accumulate and will not be paid in the next year or whenever the company declares dividends.

The cash dividends that will be paid to Each class of stock for each year will be as follows,

The preferred stock dividends are fixed at = 50 * 0.05 = $2.5 per share

The total dividends on preferred stock is = 2.5 * 2500 = $6250

2021

Total Dividend declared = $5500

Dividend paid to Preferred stockholders = $5500

Dividend paid to Common stockholders = $0

2022

Total Dividend declared = $12300

Dividend paid to Preferred stockholders = $6250

Dividend paid to Common stockholders = 12300 - 6250 = $6050

2023

Total Dividend declared = $27200

Dividend paid to Preferred stockholders = $6250

Dividend paid to Common stockholders = 27200 - 6250 = 20950