Determining Cash Dividends to Preferred and Common Stockholders Dechow Company h

Question

Determining Cash Dividends to Preferred and Common Stockholders

Dechow Company has outstanding 20,000 shares of $50 par value, 6% cumulative preferred stock and 50,000 shares of $10 par value common stock. The company declares and pays cash dividends amounting to $160,000.

a. If there are no preferred dividends in arrears, how much in total dividends, and in dividends per share, does Dechow pay to each class of stock?

b. If there are one year’s dividends in arrears on preferred stock, how much in total dividends, and in dividends per share, does to each class of stock?

Explanation / Answer

a) Since there are no preferred dividend in arrears, the total dividend would be equal to the dividend declared and paid as cash i.e. $160,000.

Dividend per share = Total dividend/Total shares outstanding

Dividend per share = $160,000/20,000

Dividend per share = $8

b) Preferred dividend = 50,000 shares x $10par value x 6%

Preferred dividend = $30,000

Since one year's dividend in arrears on preferred stock, total dividend would be

Total dividend = Cash dividend declared - Preferred stock dividend in arrears

Total dividend = $160,000 - $30,000 x 2

Total dividend = $160,000 - $60,000

Total dividend = $100,000

Dividend per share = Total dividend/Number of shares outstanding

Dividend per share = $100,000/20,000

Dividend per share = $5

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