tb problem qu. 13-198 (algo) dividends on common and cumulative preferred\na company’s outstanding stock…

tb problem qu. 13-198 (algo) dividends on common and cumulative preferred\na company’s outstanding stock consists of the following:\n• 21,000 shares of cumulative 11% preferred stock with a $10 par value.\n• 151,000 shares of common stock with a $2 par value.\nduring its first three years of operation, the company declared and paid the following total cash dividends. determine the amount of dividends paid each year to each of the two classes of stockholders: preferred and common.\nyear 1 total cash dividends $ 18,100\nyear 2 total cash dividends $ 39,000\nyear 3 total cash dividends $ 60,100\n\n| | total cash dividend paid | paid to preferred | paid to common | dividends in arrears at year - end |\n| ---- | ---- | ---- | ---- | ---- |\n| year 1 | $ 18,100 | | | |\n| year 2 | 39,000 | | | |\n| year 3 | 60,100 | | | |\n| total: | $ 117,200 | | | |

tb problem qu. 13-198 (algo) dividends on common and cumulative preferred\na company’s outstanding stock consists of the following:\n• 21,000 shares of cumulative 11% preferred stock with a $10 par value.\n• 151,000 shares of common stock with a $2 par value.\nduring its first three years of operation, the company declared and paid the following total cash dividends. determine the amount of dividends paid each year to each of the two classes of stockholders: preferred and common.\nyear 1 total cash dividends $ 18,100\nyear 2 total cash dividends $ 39,000\nyear 3 total cash dividends $ 60,100\n\n| | total cash dividend paid | paid to preferred | paid to common | dividends in arrears at year - end |\n| ---- | ---- | ---- | ---- | ---- |\n| year 1 | $ 18,100 | | | |\n| year 2 | 39,000 | | | |\n| year 3 | 60,100 | | | |\n| total: | $ 117,200 | | | |

Answer

Explanation:

Step1: Calculate annual preferred - dividend

The annual preferred - dividend is calculated as the number of preferred shares times the par value times the dividend rate. The number of preferred shares is 21,000, the par value is $10, and the dividend rate is 11%. So, the annual preferred - dividend = $21,000\times10\times0.11=$23,100$.

Step2: Analyze Year 1

The total cash dividend in Year 1 is $18,100. Since this is less than the annual preferred - dividend of $23,100, all of the $18,100 is paid to preferred stockholders. The dividends in arrears for preferred stockholders at the end of Year 1 is $23,100 - 18,100=$5,000$, and $0 is paid to common stockholders.

Step3: Analyze Year 2

The total cash dividend in Year 2 is $39,000. First, we pay the dividends in arrears from Year 1 of $5,000 to preferred stockholders. Then, we pay the remaining amount to preferred stockholders until the annual preferred - dividend is met. The amount paid to preferred stockholders is $5,000+(23,100 - 5,000)=$23,100$. The amount paid to common stockholders is $39,000 - 23,100=$15,900$. There are no dividends in arrears for preferred stockholders at the end of Year 2.

Step4: Analyze Year 3

The total cash dividend in Year 3 is $60,100. The annual preferred - dividend of $23,100 is paid to preferred stockholders. The amount paid to common stockholders is $60,100 - 23,100=$37,000$. There are no dividends in arrears for preferred stockholders at the end of Year 3.

Step5: Calculate totals

The total amount paid to preferred stockholders over the three years is $18,100 + 23,100+23,100=$64,300$. The total amount paid to common stockholders over the three years is $0 + 15,900+37,000=$52,900$.

Year Total Cash Dividend Paid Paid to Preferred Paid to Common Dividends in Arrears at year - end
Year 1 $18,100 $18,100 $0 $5,000
Year 2 $39,000 $23,100 $15,900 $0
Year 3 $60,100 $23,100 $37,000 $0
Total $117,200 $64,300 $52,900 -

Answer:

Year Total Cash Dividend Paid Paid to Preferred Paid to Common Dividends in Arrears at year - end
Year 1 $18,100 $18,100 $0 $5,000
Year 2 $39,000 $23,100 $15,900 $0
Year 3 $60,100 $23,100 $37,000 $0
Total $117,200 $64,300 $52,900 -