Bennett Company paid cash dividends totaling $150,000 in 2008 and $75,000 in 200

Question

Bennett Company paid cash dividends totaling $150,000 in 2008 and $75,000 in 2009. In 2010, Bennett intends to pay cash dividends of $800,000. Compute the amount of cash dividends to be received by preferred and common stockholders in 2008, 2009, and 2010 under each of the following assumptions. Treat each case independently. There were no dividends in arrears as of January 1, 2008.

(1) 100,000 shares of 6 percent, $50 par cumulative preferred; 25,000 shares of common
(2) 50,000 shares of 6 percent, $50 par noncumulative preferred; 25,000 shares of common
(3) 70,000 shares of 6 percent, $100 par cumulative preferred; 25,000 shares of common

Explanation / Answer

1.Cash dividend paid in 2008 $150,000 Preferred dividends @6% on $5000000 $300,000 Less:Dividends paid in 2008 $150,000 Preferred dividends due at the end of 2008 $150,000 So there is no dividends on common stock holders. 2.cash dividends paid in 2009 $75,000 preferred dividend @6% on$ 2500000 $150,000 cash dividend paid $75,000 preferred dividend due for 2009 $75,000 Here also the amount declared towards dividends is not sufficient to get dividends on common stock. 3.Bennett intends to poay cash dividend of $800,000 6% dividends on preferred stock 7000000*6% $420,000 Dividend amount available for common stock holders $380,000 For example if we consider the previous two years outstanding dividends amounts on preferred stock now cash dividends declared $800,000 Less: Preferred dividends arrears for 2008,and 2009 $225,000 preferred dividendsfor 2010 $420,000 Total preferred dividend $645,000 Dividend amount availale for common stock holders $155,000

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