Final answer:
In Saba's Company's third year, the dividends per share for preferred stock would be $2 per share, and for common stock, it would be $0.50 per share, after accounting for the preferred stock's cumulative dividends.
Step-by-step explanation:
To determine the dividends per share for preferred and common stock for the third year for Saba's Company, we first allocate dividends to the preferred stock based on its cumulative and percentage attributes. Since there are 20,000 shares of 2% cumulative preferred stock with a $100 par value, the annual dividends required for preferred shares are $40,000 (20,000 shares * $100 * 2%).
In the third year, the total dividend distributed is $90,000. Since preferred dividends are cumulative, any unpaid dividends from previous years must be paid before common shareholders receive dividends. For year three, the preferred shareholders will first receive their $40,000, and the remaining $50,000 ($90,000 - $40,000) will be distributed to common shareholders.
The preferred dividends per share for year three would remain at $2 per share (2% of $100 par value). The common dividends per share would be $0.50 per share ($50,000 divided by 100,000 shares). It is worth noting that this calculation assumes all unpaid dividends for preferred stock from prior years have already been covered.