Dividends Per Share

Question

Internal Insights Inc., A developer of radiology equipment, has stock outstanding as follows: 70,000 shares of cumulative preferred 2% stock, $60 par, and 100,000 shares of $10 par common. During its first four years of operations, the following amounts were distributed as dividends: first year, $49,000; second year, $132,000; third year, $146,000; fourth year, $160. Compute the dividend 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, leave it blank.

Answer 1

Dividends on Preferred Shares = 2 % of Value of Preferred Shares

Value of Preferred Shares = 70,000 Shares * $ 60

Value of Preferred Shares = $ 42,00,000

Dividends on Preferred Shares = 2% of 42,00,000

Dividends on Preferred Shares = $ 84,000

For Year 1

As the dividend amount is less than total amount for preferred dividend then all the dividends will be paid to Preferred Shareholders in Year 1.

Dividends per Preferred Share = 49,000 / 70,000

Dividends per Preferred Share = $ 0.7

Dividends per Common Share = 0

For Year 2

As the preferred stock is Cumulative it means that the amount of unpaid dividends get accumulated to next year so first priority is to pay balance payment of $ 35,000 of Year 1 to Preferred Shares, then Preferred dividends of $ 84,000 for Year 2 is to be paid and the balance of $ 13,000 will be paid to Common Stockholders.

Balance Payment of Year 1 of Preferred Stock = 84,000 - 49,000 = 35,000

Payment to Common Stockholders = 132,000 - 35,000 - 84,000 = $ 13,000

Total Preferred Dividends for Year 2 = 84,000 + 35,000 = $ 119,000

Dividend per share for Preferred Stock = 119,000 / 70,000

Dividends per Share of Preferred Stock = $ 1.7

Dividends per share of Common Stock = 13,000 / 100,000

Dividends per share of Common Stock = $ 0.13

Year 3

For Year Preferred Dividends = $ 84,000

For Year 3 Common Dividend = 146,000 - 84,000

Common Dividends for Year 3 = $ 62,000

Dividends per share of Preferred Stock = 84,000 / 70,000 = $ 1.20

Dividends per Share of Common Stock = 62,000 / 100,000. = $ 0.62

For Year 4

Preferred Dividend for Year 4 = $ 84,000

Common Stock Dividend for Year 4 = $ 76,000

Dividends per share of Preferred Stock = 84,000 / 70,000 = $ 1.20

Dividends per share of Common Stock = 76,000 / 100,000 = $ 0.76