Dividends per Share

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Dividends Per Share

Sandpiper Company has 15,000 shares of cumulative preferred 3% stock, $150 par and 50,000 shares of $30 par common stock. The following amounts were distributed as dividends:

20Y1	$135,000
20Y2	33,800
20Y3	202,500

Determine the dividends per share for preferred and common stock for each year. Round all answers to two decimal places. If an answer is zero, enter '0'.

Answer 1

Justin,

The key to this problem is to understand the differences between the "cumulative preferred" stock and the common stock. Cumulative preferred stockholders (1) have predetermined amounts of dividends, usually described as an annual percentage of the "par value" of the preferred stock, (2) receive those dividends before the common shareholders, i.e. they are "preferred," and (3) are entitled to dividends in "arrears" for any year's dividends that were not paid in the past, ie. the dividends are "cumulative."

So solve for the amount of preferred dividends due every year (# of shares of preferred stock x par value x percentage. If the dividends paid in a given year are more than that amount, the preferred dividends are that amount, and the common dividends are the rest. If the dividends in any year are less than that amount, the preferred shareholders get it all, and the difference is "in arrears" and is added to the amount due the preferred stock next year, with any balance the common dividends.