Question

Seventy-Two Inc., a developer of radiology equipment, has stock outstanding as follows: 60,000 shares of cumulative preferred 2% stock, $60 par and 300,000 shares of $20 par common. During its first four years of operations, the following amounts were distributed as dividends: first year, $51,000; second year, $105,000; third year, $81,000; fourth year, $120,000.

Required:
Determine the dividends per share on each class of stock for each of the four years.

Answer 1

The Preferred shares are cumulative which means that they will have to be paid eventually even if they weren't completed in one period.

Preferred dividend:

= 60,000 * 60 * 2%

= $72,000 per year

First year:

Preferred dividend Common Dividend

= $51,000 = $0

They will collect it all and be owed:

= 72,000 - 51,000

= $21,000

Second year:

Preferred dividend Common Dividend

= 21,000 + 72,000 = 105,000 - 93,000

= $93,000 = $12,000

Preferred accrued has been

paid off.

Third year:

Preferred dividend Common Dividend

= $72,000 = 81,000 - 72,000

= $9,000

Fourth year:

Preferred dividend Common Dividend

= $72,000 = 120,000 - 72,000

= $48,000