Share
Explore BrainMass

Computing Dividends on Preferred Stock

19. Bennett Company paid cash dividends totaling $150,000 in 2009 and $75,000 in 2010. In 2011, Bennett intends to pay cash dividends of $800,000. Compute the amount of cash dividends per share to be received by common stockholders in 2011 under each of the following assumptions. Treat each case independently. There were no dividends in arrears as of January 1, 2009.
(1) 25,000 shares of common; 100,000 shares of 6 percent, $50 par cumulative preferred.
(2) 25,000 shares of common; 50,000 shares of 6 percent, $50 par noncumulative preferred.
(3) 25,000 shares of common; 70,000 shares of 6 percent, $100 par cumulative preferred.

Solution Preview

(1) 25,000 shares of common; 100,000 shares of 6 percent, $50 par cumulative preferred.

The preferred dividends due total 100,000 shares*.06 rate*$50 par value per share, or $300,000. The shares are cumulative, so any dividends in arrears on preferred stock are paid first when funds are next available.

2009 2010 2011
Total dividends paid $150,000 $75,000 $800,000
Preferred dividends owed currently$300,000 $300,000 $300,000
Preferred dividends unpaid-2009 150,000 150,000 (150,000)
Preferred dividends unpaid-2010 ...

Solution Summary

Bennett Company paid cash dividends totaling $150,000 in 2009 and $75,000 in 2010. In 2011, Bennett intends to pay cash dividends of $800,000. Compute the amount of cash dividends per share to be received by common stockholders in 2011 under each of the following assumptions. Treat each case independently. There were no dividends in arrears as of January 1, 2009.
(1) 25,000 shares of common; 100,000 shares of 6 percent, $50 par cumulative preferred.
(2) 25,000 shares of common; 50,000 shares of 6 percent, $50 par noncumulative preferred.
(3) 25,000 shares of common; 70,000 shares of 6 percent, $100 par cumulative preferred.

$2.19