exercise 11 -1 dividends per share baxter inc a developer of radiology equipment
ID: 2359059 • Letter: E
Question
exercise 11 -1 dividends per share baxter inc a developer of radiology equipment , has stock outstanding as follows $18,000 shares of cumulative 2% preferred stock of $75 par, and 40,000 shares of $10 par common. During its first four years of operations , the following amounts were distributed as dividends: first year , 22,500 , second 28,800, third 40,100 fiurth 77k. calculate teh dividends per share on each class of stock for each of teh four years.. why aren't answers for these on the solution manual with the book?Explanation / Answer
If the preferred shares are cumulative, it means that any dividends not paid in one year would have to be made good in the next year(s). There are 40,000 shares of 1% preferred stocks of $25 par, which means that preferred dividends each year should be $10,000 (or $0.25 per share). In the 1st yr, only $6,000 dividends were paid, so all $6k went to the preferred stockholders ($0.15 per share), with $4,000 being in arrears. Nothing will go to the common stockholders. In the 2nd yr, $26,000 were paid out. $4,000 will go to the preferred people to make good for the arrears from the 1st yr, and another $10,000 go to them for the 2nd yr itself ($0.35 per share). That leaves $12,000 for the common people ($0.24 per share). In the 3rd yr, $4,000 were paid out. All $4,000 will go to the preferred people ($0.10 per share), with $6,000 being in arrears. The common ppl get nothing. In the 4th yr, $60,000 were paid out. $6,000 will go to the preferred people to make good for the arrears from the 3rd yr, and another $10,000 go to them for the 4th yr itself ($0.40 per share). That leaves $44,000 for the common people ($0.88 per share). Please note that there is no such thing as cumulative common stock.
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