Question

Sandhill Corporation was organized on January 1, 2019. During its first year, the corporation issued 1,900 shares of $50 par value preferred stock and 109,000 shares of $10 par value common stock. At December 31, the company declared the following cash dividends: 2019, $5,950; 2020, $13,800; and 2021, $28,000. (a) Show the allocation of dividends to each class of stock, assuming the preferred stock dividend is 7% and noncumulative.

Answer 1

Sandhill Corporation

Allocation of dividends to each class of stock:

Year Total Dividends Preferred Stock Common Stock

2019 $5,950 $5,950 $0

2020 $13,800 $6,650 $7,150

2021 $28,000 $6,650 $21,350

Step-by-step explanation:

a) Data and Calculations:

7% Preferred stock, $50 par value: Issued 1,900 = $95,000

Common stock, $10 par value: Issued 109,000 = $1,090,000

Dividends declared at December 31:

Year Dividends 7% Preferred Common Stock

2019 = $5,950 $6,650 Paid $5,950 $0

2020 = $13,800 $6,650 Paid $6,650 $7,150

2021 = $28,000 $6,650 Paid $6,550 $21,350

b) The preferred stock dividend is fixed at 7% of $95,000 yearly. Since it is noncumulative, the 2019 dividend will be limited to the dividends declared. For other years, the dividend for the preferred stock is fixed at $6,650 annually. Whatever remains after paying the preferred dividends is paid to the common stockholders.