Imaging Inc., a developer of radiology equipment, has stock outstanding as follo

Question

Imaging Inc., a developer of radiology equipment, has stock outstanding as follows: 18,000 shares of cumulative preferred 1% stock, $120 par, and 60,000 shares of $20 par common. During its first four years of operations, the following amounts were distributed as dividends: first year, $14,400; second year, $38,800; third year, $55,440; fourth year, $91,800. Compute the dividends per share on each class of stock for each of the four years. Round all answers to two decimal places. If no dividends are paid in a given year, enter "0".

Explanation / Answer

Year 1

Year 2

Year 3

Year 4

Dividends per share - preferred stock

$0.8

$1.60

$1.20

$1.20

Dividends per share - common stock

$0

$0.17

$0.56

$1.17

Working Note & Explanation;

Note: As per information of the question, it is clear that preferred stock are cummulative in nature hence in case of adequate dividend, arrears will be added to the next year.

So first of all let’s calculate actual dividend paid to preferred stock and common stock.

Year 1

Year 2

Year 3

Year 4

Actual dividend paid for the year

$14400

$38800

$55440

$91800

Minimum dividend to be paid to preferred stock (18000 * $120) * 1%

$21600

$21600

$21600

$21600

Actual dividend paid to preferred stock

$14400

$21600 + $7200 = $28800

$21600

$21600

Arrear dividend on preferred stock

$7200

$0

$0

$0

Actual dividend paid to common stock

$0

$10000

$33840

$70200

Now, calculate Dividends per share on preferred stock;

Year 1

Year 2

Year 3

Year 4

Actual dividend paid to preferred stock

$14400

$28800

$21600

$21600

Number of preferred stock

18000

18000

18000

18000

Dividends per share (Dividend / number of shares)

$0.8

$1.60

$1.20

$1.20

Now, calculate Dividends per share on common stock;

Year 1

Year 2

Year 3

Year 4

Actual dividend paid to common stock

$0

$10000

$33840

$70200

Number of common stock

60000

60000

60000

60000

Dividends per share (Dividend / number of shares)

$0

$0.17

$0.56

$1.17

Year 1

Year 2

Year 3

Year 4

Dividends per share - preferred stock

$0.8

$1.60

$1.20

$1.20

Dividends per share - common stock

$0

$0.17

$0.56

$1.17

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