The records of Hollywood Company reflected the following balances in the stockholders' equity accounts at December 31, 2013
Common stock, par $12 per share, 37,000 shares outstanding
Preferred stock, 9 percent, par $10 per share, 7,000 shares outstanding
Retained earnings, $225,000
On September 1, 2014, the board of directors was considering the distribution of a $67,000 cash dividend. No dividends were paid during the previous two years. You have been asked to determine dividend amounts under two independent assumptions
a. The preferred sock is noncumulative.
b. The preferred stock is cumulative.
1. Determine the total and per share amounts that would be paid to the common stockholders and to the preferred stockholders under the two independent assumptions. Round per share to 2 decimal places.
Dividends are distributions of capital made by companies to investors. This is one of the manners in which investors hope to earn a return on their investment in stocks. Dividends are first paid to preferred stockholders. Any remainder is then paid to common stockholders.
Answer and Explanation:
Let's begin by determining the amount owed to preferred shareholders per year.
- Preferred Dividend = Par Value per Share x Shares Outstanding x Dividend Percentage
- Preferred Dividend = $10 per share x 7,000 shares x 9%
- Preferred Dividend = $70,000 x 9%
- Preferred Dividend = $6,300
|Total||$6,300||$60,700||Preferred: Dividend per year = $6,300
Common: $67,000 - $6,300
|Per share||$0.90||$1.64||Preferred: $6,300 / 7,000 shares
Common: $60,700 / 37,000 shares
|Total||$18,900||$48,100||Preferred: $6,300 per year x 3 years
Common: $67,000 - $18,900
|Per share||$2.70||$1.30||Preferred: $18,900 / 7,000 shares
Common: $48,100 / 37,000 shares
Become a member and unlock all Study Answers
Try it risk-free for 30 daysTry it risk-free
Ask a question
Our experts can answer your tough homework and study questions.Ask a question Ask a question
Learn more about this topic:
from Finance 101: Principles of FinanceChapter 16 / Lesson 1