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Question

Seventy-Two Inc., a developer of radiology equipment, has stock outstanding as follows: 80,700 shares of cumulative preferred 3% stock, $15 par, and 401,000 shares of $25 par common. During its first four years of operations, the following amounts were distributed as dividends: first year, $55,200 ; second year, $76,900 ; third year, $80,900 ; fourth year, $100,700 .

Calculate the dividends per share on each class of stock for each of the four years. Round all answers to two decimal places. If no dividends are paid in a given year, enter "0".

Answer 1

As Table 1 illustrates, during four years of operations, Seventy-Two Inc. annual declaration of dividends results in a consistent $0.45 Dividend per Preferred Share with incremental allocations of residual amounts to Common Shareholders.

In Year One, whereas Preferred Shareholders' Dividend per Share was $0.45 (3% of $15 preferred par value), investors holding certificates of Seventy-Two Inc. common shares could expect to receive $0.05 Dividend per Share ($18,885 allocated dividends to 401,000 common shares outstanding).

In Year Two, Preferred Shareholders' Dividend per Share was, not surprisingly, $0.45. However, because total dividends available for common shareholders nearly doubled, the Common Dividend per Share virtually doubled to $0.10 ($40,585 allocated dividends to 401,000 common shares outstanding).

In Year Three, Preferred Shareholders' Dividend per Share was, quite consistently, $0.45. Total dividends available for common shareholders increased only marginally, raising the Common Dividend per Share to $0.11 ($44,585 allocated dividends to 401,000 common shares outstanding).

In Year Four, Preferred Shareholders' Dividend per Share was $0.45. Total dividends available for common shareholders spiked more noticeably, raising the Common Dividend per Share to $0.16 ($64,385 allocated dividends to 401,000 common shares outstanding).

In conclusion, dividends of share calculations for Preferred Stock and Common Stock are illustrated and followed by a brief explanation.

For further studies on this and other accounting topics, refer to Financial Accounting, Tenth Edition, Weygandt, Kimmel, Kieso ISBN-13 978-1-119-29822-9