value: 1.60 points QS 11-10 Dividend allocation between classes of shareholders

Question

value: 1.60 points QS 11-10 Dividend allocation between classes of shareholders LO C2 Stockholders' equity of Ernst Company consists of 76,000 shares of $5 par value, 8% cumulative preferred stock and 260,000 shares of $1 par value common stock. Both classes of stock have been outstanding since the company's inception. Ernst did not declare any dividends in the prior year, but it now declares and pays a $105,000 cash dividend at the current year-end Determine the amount distributed to each class of stockholders for this two-year-old company. Par Value per Dividend Preferred Dividend for two years Dividend per Number of Preferred Share Preferred Share Preferred Shares Rate Calculation of Preferred Dividend Total cash dividend To preferred shareholders To common shareholders

Explanation / Answer

Dividend distribution :

Par value preferred share Dividend rate Dividend per preferred Share Number of preferred Share Preferred dividend for two years Calculation of preferred dividend 5 8% 0.40 76000 30400*2 = 60800 Total cash dividend 105000 Total preferred shareholders 60800 Total Common Shareholders 44200

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