Answer:
See explanation section.
Explanation:
Requirement A
If the preferred stock is cumulative, cash dividends paid to each class of stock is as follows:
1st year = Cash dividend's for common stock = $0
Cash dividend's for preferred stock = $0
As there is no declaration of cash dividend for the first year.
As the preferred stock is cumulative, preferred dividends for the first year will be given in the 2nd year.
2nd year = Cash dividend's for common stock = $310,000 - $8,400
= 301,600
Cash dividend's for preferred stock = $4,200 + $4,200 = $8,400
<em>Calculation:</em> 1st year dividend = 70,000 × $1 × 6% = $4,200. It will remain same in the 2nd year for the preferred stock.
3rd year = Cash dividend's for common stock = $90,000 - $4,200
= $85,800
Cash dividend's for preferred stock = $4,200
Preferred dividend's remain same for the 3rd year too.
Requirement B
If the preferred stock is non-cumulative, cash dividends paid to each class of stock is as follows:
1st year = Cash dividend's for common stock = $0
Cash dividend's for preferred stock = $0
As there is no declaration of cash dividend for the first year.
As the preferred stock is non-cumulative, preferred dividends for the first year will not be given in the 2nd year.
2nd year = Cash dividend's for common stock = $310,000 - $4,200
= 305,800
Cash dividend's for preferred stock = $4,200
<em>Calculation:</em> 2nd year dividend = 70,000 × $1 × 6% = $4,200.
3rd year = Cash dividend's for common stock = $90,000 - $4,200
= $85,800
Cash dividend's for preferred stock = $4,200
Preferred dividend's remain same for the 3rd year too.
