Question

The records of Hollywood Company reflected the following balances in the stockholders' equity accounts at the end of the current year: Common stock, $11 par value, 38,000 shares outstanding Preferred stock, 11 percent, $9 par value, 10,000 shares outstanding Retained earnings, $225,000 On September 1 of the current year, the board of directors was considering the distribution of an $72,000 cash dividend. No dividends were paid during the previous two years. You have been asked to determine dividend amounts under two independent assumptions (show computations): a. The preferred stock is noncumulative. b. The preferred stock is cumulative. Required: 1. Determine the total and per share amounts that would be paid to the common stockholders and the preferred stockholders under the two independent assumptions. (Round your "per share" amounts to 2 decimal places.)

Answer 1

Answer:

A. Preferred total = $9,900, preferred per share = $0.99.

Common stock total dividend = $62,100, dividend per share = $1.63

B. Preferred total = $29,700, preferred per share = $0.99.

Common stock total dividend = $42,300, dividend per share = $1.11

Explanation:

A. If the preferred stock is non-cumulative :

Preferred stock has a rate of 11% and par value of $9.

Dividend per share = 11% * $9 = $0.99

Total dividend payable to preferred shareholders = dividend per share * number of shares outstanding

= 0.99 * 10000

= $9900

We subtract $9900 from the total dividend declared to get the total dividend payable to common stockholders.

Common dividend = 72000 - 9900 = $62100

Divided per share = 62100/38000

= $1.63

B. If the preferred stock is cumulative :

Since the preferred dividend was not paid during the previous two years, we add the two years to the current year.

Total annual dividend payable to preferred shareholders = $9900

Total outstanding = 9900 * 3 = 29,700

Subtract 29,700 from the proposed dividend to obtain the total dividend payable to common stockholders.

Common dividend payable = 72000 - 29700 = $42,300

Dividend per share = 42300/38000

Dividend per share = $1.11