An example would be problem PE 11-1A Taiwanese Company has5,000 shares of 4% cum

Question

An example would be problem PE 11-1A Taiwanese Company has5,000 shares of 4% cumulative preferred stock of $40 par and 10,000shares of $90 par common stock. The following amounts weredistributed as dividends:                         Year1     $15,000                         Year2     $5,000                         Year3     $62,000 Determine the dividends per share for preferred and commonstock for each year. An example would be problem PE 11-1A Taiwanese Company has5,000 shares of 4% cumulative preferred stock of $40 par and 10,000shares of $90 par common stock. The following amounts weredistributed as dividends:                         Year1     $15,000                         Year2     $5,000                         Year3     $62,000 Determine the dividends per share for preferred and commonstock for each year.

Explanation / Answer

2. Pref Dividend computation: 4% on Face value of $40 = $1.6. Thus max dividend per Prefshare is $1.6. Total no of pref shares is 5000. So Year 1: Dividend = 5000x1.6=$8000 Year 2 : Only $5000 is available. So as per Rule 1, Whole$5000 will be paid as dividend to pref shareholders. This amountsto $5000/1000 = $1 per Pref share. Year 3 : Dividend paid: 5000x1.6=$8000. 3. Common shareholder's dividend. The amount available for distribution after paying dividend topref shareholders is distributed to Common shareholders. Year 1: Amt remaining : $15000-$8000= $7000. No of shares 10,000. Therefore $7000 is paid to 10,000shareholders. Per share dividend = $7000/10000=$0.70 pershare. Year 2: As amount is not sufficent to pay to Prefshareholders, NO dividend will be paid to commonshareholders. Year 3: Amt remaining : $62000-$8000=$54000 No of shareholders: 10,000. Therefor Div pershare=$54000/10000=$5.4 per share

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