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11A-8. LILL Corporation has issued 1,500 shares of preferred stock, which have a

ID: 2583540 • Letter: 1

Question

11A-8. LILL Corporation has issued 1,500 shares of preferred stock, which have a par value of S60 each. The preferred dividend rate on this stock is 5 of par value. LILL has also issued 18,000 shares of common stock Calculate how much dividend would be paid to the owners of the preferred and common stock under each of the following scenarios: a. The dividend payment is S3,000. preferred stock is neither cumulative nor participating. The total b. Same as a. but with a total dividend payment of S12,000 c. The preferred stock is cumulative but not participating. Dividends were up- to-date for all years prior to two years ago. However, no dividends have been paid for the last two years. This year LILL announces a total dividend payment of $10,500. d. Same as c. but with a total dividend payment of $25,500. e. The preferred stock is not cumulative but it is participating. Once the common stockholders get an amount per share equal to the dividend of the preferred shareholders, then the two groups share equally in dividends ona per share basis. LILL announces a total dividend payment of $4,000. f. Same as e. but with a total dividend payment of $10,500. g. Same as e. but with a total dividend payment of $95,000. h. All other things being equal, which of these features would you like to have associated with preferred stock that you own?

Explanation / Answer

preferred dividend

common dividend

total

1

current dividend

3000

3000

balance to common

0

0

2

current dividend

4500

4500

balance to common

7500

7500

3-

dividend in arrear

9000

9000

current dividend

1500

1500

balance to common

0

0

9000 = 4500*2

4-

dividend in arrear

9000

9000

current dividend

4500

4500

balance to common

12000

12000

9000 = 4500*2

5-

current dividend

4000

4000

pro rata share to common

0

0

participating to preferrd

0

0

balance to common

0

0

6-

current dividend

4500

4500

pro rata share to common

750

750

participating to preferrd

750

750

balance to common

4500

4500

7-

current dividend

4500

4500

pro rata share to common

43000

43000

participating to preferrd

43000

43000

balance to common

4500

4500

95000-9000 = 86000/2 =43000

8-

I would like to have cumulative feature with my preferred stock because in this case ,preferred stock holders would be assured about the payment of dividend in arrears

preferred dividend

common dividend

total

1

current dividend

3000

3000

balance to common

0

0

2

current dividend

4500

4500

balance to common

7500

7500

3-

dividend in arrear

9000

9000

current dividend

1500

1500

balance to common

0

0

9000 = 4500*2

4-

dividend in arrear

9000

9000

current dividend

4500

4500

balance to common

12000

12000

9000 = 4500*2

5-

current dividend

4000

4000

pro rata share to common

0

0

participating to preferrd

0

0

balance to common

0

0

6-

current dividend

4500

4500

pro rata share to common

750

750

participating to preferrd

750

750

balance to common

4500

4500

7-

current dividend

4500

4500

pro rata share to common

43000

43000

participating to preferrd

43000

43000

balance to common

4500

4500

95000-9000 = 86000/2 =43000

8-

I would like to have cumulative feature with my preferred stock because in this case ,preferred stock holders would be assured about the payment of dividend in arrears