The shareholders’ equity of Kramer Industries includes the data shown below. Dur

Question

The shareholders’ equity of Kramer Industries includes the data shown below. During 2019, cash dividends of $240 million were declared. Dividends were not declared in 2017 or 2018.

Required:
Determine the amount of dividends payable to preferred shareholders and to common shareholders under each of the following two assumptions regarding the characteristics of the preferred stock. (Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)

Assumption A — The preferred stock is noncumulative.
Assumption B — The preferred stock is cumulative.

($ in millions) Common stock $ 300 Paid-in capital—excess of par, common 900 Preferred stock, 8%, nonparticipating 150 Paid-in capital—excess of par, preferred 420

Explanation / Answer

Answer

Amount ($ in million)

Preferred Stock capital

$150

Annual Dividend at 8%

$12

Dividend in Arrear:

2017

$12

2018

$12

Total

$24

Assumption A

Assumption B

Total Dividends declared in 2019

$240

$240

(-) Dividends payable to Preferred Stock:

of 2017

0

12

of 2018

0

12

of 2019

12

12

Total Dividend paid to preferred stock holders

$12

$36

Dividend available to common stockholders

$228

$204

Amount ($ in million)

Preferred Stock capital

$150

Annual Dividend at 8%

$12

Dividend in Arrear:

2017

$12

2018

$12

Total

$24

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