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Calculating dividends
I want help understanding calculating dividends on preferred stock, here is the question:
Golf-Easy Company has 10,000 shares of 3% preferred stock of $50 par and 25,000 shares of $100 par common stock. The following amounts were distributed as dividends: Year 1 $40,000 Year 2 10,000 Year 3 120,000 Determine the dividends per share for perferred and common stock for each year. I am actually trying to understand the formula to use for this? |
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Each preferred share is due $1.50 in dividend per year. Any excess is distributed to common. If there is a deficit as in year two, the dificit must be paid in the following year before any distribution is made to common. The formula would be 3% x $50 preferred par equals preferred annual distribution. Deduct this amount from total dividens and you have the allocation to common.
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