# Dividend Distribution

I'm having difficulty trying to figure out how to do a dividend distribution of a corporation. This is not a homework question!
This is the information I have on the topic:
Company A had the following stock outstanding during each of its 5 year operation:
50,000 shares of 6%, \$100-par-value, cumulative, nonparticipating preferred.
200,000 shares of \$10-par-value common.
The net income and the amounts distributed as dividends during the first 5 years of the company were:
Year 1: \$240,000
2: \$320,000
3: \$500,000
4: \$890,000
5: \$760,000
What is the total preferred dividend paid in year 2?
What is the total preferred dividend per share paid in year 3?
What is the total common dividend paid in year 4?
What is the total common dividend per share paid in year 5?

 morgaine300 Posts: 6,564, Reputation: 1474 Uber Member #2 Jun 12, 2008, 06:07 PM
Here is another example that I helped someone else through. Why don't you look through this and see what you can figure out, and then ask whatever you don't understand. Since yours is cumulative, you'll have to read that part on my second post. (Ignore the nonparticipating part. Since it's nonparticipating, it basically has no meaning.)

 Abcfitz44 Posts: 16, Reputation: 1 New Member #3 Jun 13, 2008, 07:26 PM
Ok I read that post. So if I did it right then years 2-5 get the dividend of \$300,000 preferred, and what ever is left over would go to the common. So like for year 3 there's \$500,000 distributed, \$300,000 is preferred, the difference is \$200,000 which is common?
And to figured out preferred dividend per share would you do \$300,000 divided by \$500,000 which is \$6.00?
And to figure out common dividend per share for year 5 is it the same after you set up the chart and calculations?
 morgaine300 Posts: 6,564, Reputation: 1474 Uber Member #4 Jun 13, 2008, 11:01 PM
Quote:
 Ok I read that post. So if I did it right then years 2-5 get the dividend of \$300,000 preferred, and what ever is left over would go to the common. So like for year 3 there's \$500,000 distributed, \$300,000 is preferred, the difference is \$200,000 which is common?
That works for years 4 & 5. But you're not accounting for the fact that it's cumulative. You might want to read the paragraph on that part again.

When it's cumulative, you have to make up for whatever they don't get. I.e. The first year is only 240,000 -- so they missed getting 60,000 of dividends. That goes into what we call arrears. When it's non-cumulative, they just miss out on that part. But this is cumulative. You can't figure year 2 without paying attention to year 1. The fact that it did not ask for year 1 even makes me wonder if they wanted to make sure you were paying attention to this. :-)

So in year two, there's 60,000 in arrears that needs made up for. There's only 320,000 available. 300,000 of that is for that year's preferred, but then they also get the 20,000, to help pay for what's in arrears. So they still get it all. Now arrears is down to 40,000 since 20,000 has been paid. Etc. By time you get the year 4, everything in arrears in paid, and the preferred just get their 300,000 and common always gets whatever is left over.

Quote:
 and to figured out preferred dividend per share would you do \$300,000 divided by \$500,000 which is \$6.00?
I'm going to assume that was a typo. Right answer, wrong numbers. \$300,000/50,000 shares -- not \$500,000 (which doesn't equal \$6).

Quote:
 and to figure out common dividend per share for year 5 is it the same after you set up the chart and calculations?
It's still their dividends divided by # of common shares. I always fill out the whole chart with totals first, and then go back and divide by shares to get that part.
 Abcfitz44 Posts: 16, Reputation: 1 New Member #5 Jun 16, 2008, 10:51 AM
Ok I believe I got it now, so to answer the questions after I did the chart:
Q1: total preferred dividend paid for year 2- \$320,000
2: preferred dividend per share- \$6
3: total common dividend paid for year 4- \$590,000
4: common dividend per share- \$2.30 (\$460,000/200,000 shares)
Did I get it?
 morgaine300 Posts: 6,564, Reputation: 1474 Uber Member #6 Jun 16, 2008, 02:48 PM
I'm glad I still have this little paper with my work still sitting here. :-)

Still getting off somewhere. Year 2 is correct. But you're still not accounting for the rest of what's in arrears. Year 1 there is only 240,000 of dividends, so 60,000 went into arrears.

In year 2, only 20,000 of that is being paid out to the preferred shareholders, leaving 40,000 still in arrears. So when year 3 arrives, you still have 40,000 to make up for. I.e. The yearly 300,000 requirement, PLUS what's in arrears. By coming up with \$6 per share, that means you can't have added that 40,000 on.

Year 4 is correct because the amount in arrears has already been paid, so the preferred are back to their 300,000. And year 5 is also correct.

It seems to be dealing with that part in arrears that you're having the trouble with.
 Abcfitz44 Posts: 16, Reputation: 1 New Member #7 Jun 16, 2008, 02:57 PM
Oops, actually I did the work right I just forgot to put that 40,000 when I was doing the per shares calculations, so the answer is \$6.80 per share. I didn't understand a thing before you helped me with it though, now I do! Lol
 Abcfitz44 Posts: 16, Reputation: 1 New Member #8 Jun 16, 2008, 04:51 PM
Hey since you seem to know about dividends, can you help me with another question. It's more or less for understanding how to do it and if it's as easy as I think it is.
Sept. 1, 1991, Company A purchased, on the open market, 10,000 shares of its own fully paid common stock outstanding for \$200,000. At the time of purchase, Comp A had 100,000 shares of common stock outstanding. On Oct. 1, 1991, the board of directors of Comp A declared a \$3 dividend to holders of record on Oct. 10, payable Oct. 15. The unappropriated retained earnings on Aug. 31, 1991, were \$18,210,000. After the payment of the dividend on Oct. 15, what will be the retained earnings available for future dividends?
The answers I got were either \$17, 910,000 (100,000 x \$3= 300,000; \$18,210,000 - 300,000= \$17,910,000)
OR \$17,940,000 (100,000 - 10,000= 90,000; 90,000 x \$3= \$270,000; \$18,210,000 - 270,000= \$17,940,000)
 morgaine300 Posts: 6,564, Reputation: 1474 Uber Member #9 Jun 16, 2008, 09:27 PM
We usually appreciate it if you post new problems on a separate board. It gets confusing trying to follow different questions in the same thread. (Plus someone who hasn't read it yet would read all that, just to discover it's a new question.)

Quote:
 Originally Posted by Abcfitz44 OR \$17,940,000 (100,000 - 10,000= 90,000; 90,000 x \$3= \$270,000; \$18,210,000 - 270,000= \$17,940,000)
This one. Assuming you don't have to appropriate for the treasury shares. I wouldn't have thought of that, except for them mentioning that the amount is unappropriated retained earnings. Because they're bringing that issue up, it makes me wonder if you're to the level that you need to deal with appropriated and unappropriated. But I really can't answer that part.

But other than that issue, this is it. They don't pay dividends on the treasury shares because they don't pay themselves dividends. So you subtract those out to get outstanding shares, which is 90,000. That's how many they pay dividends on.
 Abcfitz44 Posts: 16, Reputation: 1 New Member #10 Jun 17, 2008, 08:27 AM
That's what I thought too, ok thanks again! Have a good one!

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