Question

Skinner Company began business on June 30, 2018. At that time, it issued 18,000 shares of $50 par value, 6% cumulative preferred stock and 90,000 shares of $10 par value common stock. Through the end of 2020, there has been no change in the number of preferred and common shares outstanding. a. Assume that Skinner declared and paid cash dividends of $63,000 in 2018, $0 in 2019, and $378,000 in 2020. Compute the total cash dividends and the dividends per share paid to each class of stock in 2018, 2019, and 2020

Answer 1

2018

Preferred Dividend = $54,000

Common Stockholders = $9,000

2019

Preferred Dividend arrears =$54,000

Common Stockholders = $0

2020

Preferred Dividend = $54,000

Common Stockholders = $270,000

Step-by-step explanation:

Preferred stockholders has an advantage that they are paid first when there is any dividend is announced. The residual dividend will be divided into the common stockholders. Any prior years due dividend and current years dividend associated with preferred share will be paid first.

As per given data

Preferred shares = 18,000 x $50 = $900,000

Preferred Dividend = $900,000 x 6% = $54,000

2018

Dividend Declared = $63,000

Dividend Allocated to Common Stockholders = Dividend Declared - Preferred Dividend = $63,000 - $54,000 = $9,000

2019

Dividend Declared = $0

Preferred Dividend Arrears = $54,000

2020

Dividend Declared = $378,000

Preferred Dividend Arrears = $54,000

Dividend Allocated to Common Stockholders = Dividend Declared - Preferred Dividend - Preferred Dividend Arrears = $378,000 - $54,000 - $54,000 = $270,000