Answer:
(a) Preferred dividend = $9,500; and Common dividend = $73,500.
(b) Preferred dividend = $28,500; and Common dividend = $54,500.
(c) Total preferred dividend = $46,022; andTotal common dividend = $36,978
Explanation:
(a) The preferred stock is noncumulative and nonparticipating. (Round answers to 0 decimal places, e.g. $38,487.)
This implies preferred shareholders are entitled only to this year's dividend. Therefore, we have:
Preferred dividend = Number of preferred shares * Preferred share par value * Dividend percentage = 1,900 * $100 * 5% = $9,500
Common dividend = Retained earnings - Preferred dividend = $83,000 - $9,500 = $73,500
(b) The preferred stock is cumulative and nonparticipating. (Round answers to 0 decimal places, e.g. $38,487.)
This implies preferred shareholders are entitled to the previous 2 years and this year's dividends making 3 years. Therefore, we have:
Preferred dividend = Number of preferred shares * Preferred share par value * Preferred dividend percentage = 1,900 * $100 * 5% * 3 = $28,500
Common dividend = Retained earnings - Preferred dividend = $83,000 - $28,500 = $54,500
(c) The preferred stock is cumulative and participating. (Round the rate of participation to 4 decimal places, e.g.1.4278%. Round answers to 0 decimal places, e.g. $38,487.)
First-Preferred dividend for 2 years = Number of preferred shares * Preferred share par value * Dividend percentage = 1,900 * $100 * 5% * 2 = $19,000
Second-Preferred dividend for this year = Number of preferred shares * Preferred share par value * Dividend percentage = 1,900 * $100 * 5% = $9,500
Third-Common dividend = Number of common shares * Common share per value * Preferred dividend percentage = 5,200 * $50 * 5% = $13,000
Remaining payout = Retained earnings - First-Preferred dividend for 2 years - Second-Preferred dividend for this year - Third-Common dividend = $83,000 - $19,000 - $9,500 - $13,000 = $41,500
Fourth participating payout as preferred dividend = Remaining payout * (Value of preferred shares / (Value of preferred share + Value of preferred share common shares)) = $41,500 * ((1,900 * $100) / ((1,900 * $100) + (5,200 * $50))) = $17,522
Fifth participating payout as common dividend = Remaining payout * (Value of common shares / (Value of preferred share + Value of preferred share common shares)) = $41,500 * ((5,200 * $50) / ((1,900 * $100) + (5,200 * $50))) = $23,978
Total preferred dividend = First-Preferred dividend for 2 years + Second-Preferred dividend for this year + Fourth participating payout as preferred dividend = $19,000 + $9,500 + $17,522 = $46,022
Total common dividend = Third-Common dividend + Fifth participating payout as common dividend = $13,000 + $23,978 = $36,978
