Prairie Fire Snowmobile Corp. manufactures and sells snowmobiles in <?xml:namesp

Question

Prairie Fire Snowmobile Corp. manufactures and sells snowmobiles in <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Wisconsin, Minnesota and the Dakotas. A publicly owned corporation, the company's outstanding stock consisted of 25,000 shares of 10%, 20 par cumulative Preferred Stock and 100,000 shares of Common Stock in the years 20X1 %u2013 20X6. Prairie Fire has declared the following annual dividends over   the six-year period: 20X1 none; 20X2 $ 100,000; 20X3 $ 150,000; 20X4 $ 120,000; 20X5 $ 25,000; and 20X6 $ 95,000.   Calculate the total dividends and the per-share dividends for each class of stock for each of the six years. Include a column for dividends in arrears

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                                               Preferred Dividends                          Common Dividends

Year    Total Dividends           Total          Per Share     Arrears        Total         Per Share     

Explanation / Answer

There are 40,000 shares of 1% preferred stocks of $25 par, which means thatpreferred 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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