Question

Preferred Stock—6%, $15 Par Value; 7,500 shares authorized, 6,000 shares issued and outstanding

Common Stock—$0.35 Par Value; 2,000,000 shares authorized, 1,300,000 shares issued and outstanding

Requirement 1:
a. Golden declares cash dividends of $25,000 for 2016. How much of the dividends goes to preferred​stockholders? How much goes to common​stockholders?
b. Assume the preferred stock is cumulative and Golden passed the preferred dividend in 2014 and 2015. In 2016​, the company declares cash dividends of $30,000. How much of the dividend goes to preferred​ stockholders? How much goes to common​stockholders?
c. Assume the preferred stock is noncumulative and Golden passed the preferred dividend in 2014 and 2015. In 2016​, the company declares cash dividends of $30,000. How much of the dividend goes to preferred​ stockholders? How much goes to common​ stockholders?

Golden​'s dividend would be divided between preferred and common stockholders in this​ manner:

Total Dividend
Dividend to preferred stockholders:
Dividend in arrears
Current year dividend
Total dividend to preferred stockholders
Dividend to common stockholders

Requirement 2:
Assume the preferred stock is cumulative and Golden passed the preferred dividend in 2014 and 2015. In 2016​, the company declares cash dividends of $30,000. How much of the dividend goes to preferred​ stockholders? How much goes to common​ stockholders?

Answer 1

preferred stock dividends = 6,000 preferred stocks x $15 x 6% = $5,400

common stocks outstanding = 1,300,000

a) $5,400 goes to preferred stockholders, dividend per preferred stock = $5,400 / 6,000 = $0.90

$25,000 - $5,400 = $19,600 goes to common stockholders, dividend per common stock = $19,600 / 1,300,000 = $0.015

b) $5,400 x 3 = $16,200 goes to preferred stockholders, dividend per preferred stock = $16,200 / 6,000 = $2.70

$30,000 - $16,200 = $13,800 goes to common stockholders, dividend per common stock = $13,800 / 1,300,000 = $0.0106

c) $5,400 goes to preferred stockholders, dividend per preferred stock = $5,400 / 6,000 = $0.90

$30,000 - $5,400 = $24,600 goes to common stockholders, dividend per common stock = $24,600 / 1,300,000 = $0.019