Question

Dividends Per Share Lightfoot Inc., a software development firm, has stock outstanding as follows: 20,000 shares of cumulative preferred 3% stock, $20 par, and 25,000 shares of $100 par common. During its first four years of operations, the following amounts were distributed as dividends: first year, $4,600; second year, $7,600; third year, $46,550; fourth year, $89,250. Calculate the dividends per share on each class of stock for each of the four years. Round all answers to two decimal places. If no dividends are paid in a given year, enter "0".

Answer 1

Answer:

Preferred Shares always get paid before Common Shares. In this case the Preferred Shares are Cumulative. This means that when they are not paid their full dividends in one year, the remaining balance is deferred to the next period.

Preference Shares are quoted at 3% so they get dividends worth 3% of their worth.

= $20 * 20,000 * 3%

= $12,000

Year 1

Preference Shares to get $12,000

Only $4,600 announced.

Preference Shares take all remaining

= 12,000 - 4,600

= $7,400 Deferred till next period.

Common Shares get nothing.

Preference Shares Dividends Per Share

= Dividends / No. Of Shares

= 4,600/20,000

= $0.23

No Common Share Dividend per Share

Year 2

Preference Shares = Amount from last year + This year Dividend

= 7,400 + 12,000

= $19,400

Dividends declared this year = $7,600

Preference take all.

= 19,400 - 7,600

= $11,800 accrued till next year

Preference Shares Dividends Per Share,

= 7,600/20,000

= $0.38

Year 3

Preference Shares Dividends

= Accumulated Outstanding + This year dividends

= 11,800 + 12,000

= $23,800

Dividends declared $46,550

Preference take their share leaving the following for Common Shareholders

= 46,550 - 23,800

= $22,750

Preference Shares Dividends Per Share

= 23,800/20,000

= $1.19

Common Share Dividend per share

= 22,750/25,000 common shares

= $0.91

Year 4

Preference Shares will be $12,000 as deferred Dividends have been paid.

Dividends Declared $89,250

Amount left for Common Shareholders

= 89,250 - 12,000

= $77,250

Preference Shares Dividends Per Share

= 12,000/20,000

= $0.6

Common Share Dividend per share

= 77,250/25,000

= $3.09