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Compute dividends distributed to preferred shares
A company has $100,000 of 10% noncumulative, nonparticipating, preferred stock outstanding, and $150,000 of common stock outstanding. In the company's first year of operation, no dividends were paid, but during the second year, it paid cash dividends of $25,000. Compute the dividends to be distributed to (1) preferred shares and (2) common shares.
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Because it's noncumulative, it's easy. The preferred get 10% of their total value (i.e. the $100,000) each year. They get UP TO that amount. They didn't get any the first year, and being noncumulative they won't ever get it. So second year is started "clean" -- they'll get the 10%. Common gets the leftovers. |
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