help! PROBLEM IV (14 Points) bbit\'s Wholesale Merchandise had 20,000 shares of

Question

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PROBLEM IV (14 Points) bbit's Wholesale Merchandise had 20,000 shares of 6%, $20 par value preferred stock and 15,000 shares of S25 par value common stock outstanding throughout 2012. These data apply to each of the independent situations below (Your answers must be supported by complete, correct computations: You will not receive credit for correct answer that is not supported by complete, correct computations!! SHOW ALL COMPUTATIONS!! a) Assuming that total dividends in 2012 were $35,000 and that the preferred stock is cumulative with one year's preferred dividends in arrears on December 31, 2011, the preferred stockholders should receive 2012 dividends totaling b) Assuming that total dividends declared in 2012 were $60,000 and that the cumulative preferred stock dividends have not been paid after 2010, the common stockholders should receive total 2012 dividends of

Explanation / Answer

(a). The preferred stockholders should receive 2012 dividends totalling = $35000

Explanation;

Total dividend in 2012 = $35000

Arrear preferred stock dividend for 2011;

(20000 * $20 * 0.06) = $24000

Preferred stock dividend for 2012;

(20000 * $20 * 0.06) = $24000

Thus total dividend of both year ($24000 + $24000) = $48000

But as per information of the question, it is given that maximum dividend in 2012 given is = $35000

So preferred stock will receive total dividend in 2012 = $35000

(b). Common Stockholders will receive total dividends in 2012 = $12000

Explanation;

First of all let’s calculate total arrear dividends on preferred stock after 2010;

For 2011;

(20000 * $20 * 0.06) = $24000

For 2012;

(20000 * $20 * 0.06) = $24000

Total dividends for preferred stockholders ($24000 + $24000) = $48000

Dividends declared in 2012 = $60000

Thus, Common Stockholders will receive total dividends in 2012;

($60000 – $48000) = $12000

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