Sweet Company’s outstanding stock consists of 1,300 shares of cumulative 5% pref
ID: 2592578 • Letter: S
Question
Sweet Company’s outstanding stock consists of 1,300 shares of cumulative 5% preferred stock with a $100 par value and 11,300 shares of common stock with a $10 par value. During the first three years of operation, the corporation declared and paid the following total cash dividends.
Dividend Declared
Year 1 $ 3,300
Year 2 $ 7,300
Year 3 $ 38,500
a)$19,500 preferred; $29,600 common.
b)$13,800 preferred; $35,300 common.
c)$6,500 preferred; $42,600 common.
d)$16,300 preferred; $32,800 common.
e)$13,000 preferred; $36,100 common.
Explanation / Answer
Answer:
a)$19,500 preferred; $29,600 common.
Explanation to the answer:
In the question it was given that, Company has outstanding stock consists of 1,300 shares of cumulative 5% preferred stock with a $100 par value
So company has to pay first to cumulative dividend to cumulative 5% preferred stock first then whatever remains will go to equity share holder
Every year company has to pay cumulative 5% preferred stock as under
=1300x100x5%
=$6500
If dividend not paid up to $6500 then whatever remains left will be paid next year when company has enough fund
Total Decided for 3 year
=3300+7300+38500
49100
less:
Preferred dividend
year-1=$6500
6500
year-2=$6500
6500
year-3=$6500
6500
Total to preference share holder
19500
Reaming go to common equity share holder
29600
Total Decided for 3 year
=3300+7300+38500
49100
less:
Preferred dividend
year-1=$6500
6500
year-2=$6500
6500
year-3=$6500
6500
Total to preference share holder
19500
Reaming go to common equity share holder
29600
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