The board of directors is considering the distribution of a cash dividend to the
ID: 2380463 • Letter: T
Question
The board of directors is considering the distribution of a cash dividend to the two groups of stockholders. No dividends were declared during the previous two years. Three independent cases are assumed:
Compute the amount of dividends, in total and per share, that would be payable to each class of stockholders for each case. (Leave no cells blank - be certain to enter "0" wherever required. Round your answers to 2 decimal places. Omit the "$" sign in your response.)
Chicago Company had the following stock outstanding and retained earnings at December 31, 2011:
Explanation / Answer
Case A The preferred stock is noncumulative; the total amount of dividends is $31,000.
Dividend for Preferred stock = 10%*15*8,000 shares = $12,000
Dividend per sahre for Preferred stocks = 12000/8000=$1.5
Total = $31,000
Dividend for common stock = 31000-12000= $19000
Dividends Per share for common = 19000/35000 =0.54
Case 2 The preferred stock is cumulative; the total amount of dividends is $25,000.
Dividend for Preferred stock = 3*10%*15*8,000=$36000
Dividend is less than dividend available
Total = $25,000
Dividend per sahre for Preferred stocks = 25000/8000=$3.13
Dividend for common stock = $0
Dividends Per share for common = $0
Case 3 Same as Case B, except the amount is $67,000.
Dividend for Preferred stock = 3*10%*15*8,000=$36000
Dividend per sahre for Preferred stocks = 36000/8000=$4.5
Total = $67000
Dividend for common stock = $67,000- 36000 = $31,000
Dividends Per share for common = $31000/35000 =$0.89
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