Question

Seventy-Two Inc., a developer of radiology equipment, has stock outstanding as follows: 80,000 shares of cumulative preferred 3% stock, $20 par and 400,000 shares of $25 par common. During its first four years of operations, the following amounts were distributed as dividends: first year, $36,000; second year, $72,000; third year, $80,000; fourth year, $100,000. Determine the dividends per share on each class of stock for each of the four years. Round your answers to two decimal places. If no dividends are paid in a given year, enter "0".

Answer 1

first year:

PS $0.45 CS none

second year

PS $0.75 CS 0.03

third year:

PS $0.60 CS 0.08

fourth year:

PS $0.60 CS 0.13

Step-by-step explanation:

the preferred stock has preference over he common stock thus, they receive payment first:

80,000 x $20 x 3% = 48,000

first year 36,000

all goes into preferred stock as is lower than 48,000 and 12,000 are carryfowards:

36,000 / 80,000 shares = 0.45 dividen per share

second year 72,000

we subtract 48,000 for the current year and add up the 12,000 arrears

which is 60,000 the rest goes for common stock:

$60,000 preferred dividneds/80,000 preferred shares = 0.75 per share

$ 12,000 common dividends / 400,000 common shares = 0.03 per share

third year:

80,000 - 48,000 =32,000 common dividends

$48,000 preferred dividneds/80,000 preferred shares = 0.60 per share

$ 32,000 common dividends / 400,000 common shares = 0.08 per share

forth year:

100,000 declared - 48,000 preferred = 52,000 common dividends

$48,000 preferred dividneds/80,000 preferred shares = 0.60 per share

$ 52,000 common dividends / 400,000 common shares = 0.13 per share