Financial Accounting, Dividends Per Share

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Dividends Per Share

Seventy-Two Inc., a developer of radiology equipment, has stock outstanding as follows: 60,000 shares of cumulative preferred 3% stock, $20 par and 400,000 shares of $25 par common.

During its first four years of operations, the following amounts were distributed as dividends: first year, $31,000; second year, $76,000; third year, $80,000; fourth year, $110,000.

Determine 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 "0.00".

Answer 1

Hello Lane,

Hope this helps.

Outstanding stock:

Preferred Stock:             60,000 shares * 20 par = 1,200,000 * .03        = 36,000 Annual Dividend

Cumulative means that the shareholders will be entitled to annual dividends annual, including the years the board of directors did not approve dividend. 

Common Stock – 400,000 shares @ 25 par - Will be entitled to the dividends not paid to the Preferred in a given year. 

Note:

Both common and preferred stock can be participating where they will be entitled to additional dividend payments, but that situation does not appear here.

The dividend not paid to the preferred in prior years will not be reported as a liability. They are simply dividends in arrears and reported in a memorandum entry. 

Details	Total	Preferred	Dividend	Common	Dividend
Dividend	Per Share	Per Share
1st Year	31,000	31,000	0.52	0.00	0.00
2nd Year	76000	5,000 + 36,000	0.68	35,000	0.088
3rd Year	80,000	36,000	0.60	44,000	0.11
4th Year	110,000	36,000	0.60	74,000	0.19

Per share computation = dividend/number of shares outstanding; For Example,  31,000/60,000 = .52