[Jindani]

I'm trying to understand, how to calculate dividend distribution and arreage. From the old posts but getting trouble to understand completely
if sombody can tell me how to do that , I really appreciate that

My puzzle question is

Corporation had the following capital stock structure:

Preferred stock--10% cumulative; participating to the extend of 3% above preference rate; par value $100;authorized, 50,000 shares; issued, 10,000 shares.

Common Shares-- Par value $100; authorized, 10,000 shares; issued, 10,000 shares.

The total dividend payments made during the first five years follow:

Year 1--------$210,000
Year 2--------$280,000
Year 3--------$40,000
Year 4--------$370,000
Year 5--------$250,000

I need to understand how to calculate preferred dividend, common dividend, arrearage and how to calculate 3% participation dividend

If some body explain me, I really appriciate that.

[rehmanvohra]

Preferred stockholders get 13% when profits are sufficient to pay extra dividends. They do not participate when previous years are dividends paid in the next year.
--------- Profits ---- Preferred --- Common
Year 1--$210,000---110,000 -----100,000
Year 2--$280,000---130,000 -----150,000
Year 3--$40,000 ----------------------------
Year 4--$370,000---230,000 ----140,000
Year 5--$250,000---130,000 ----120,000

This how it is done:
First pay off preferred 10%
Next pay common equal to preferred
Calculate balance in retained earnings
Pay preferred 3%
Pay common the balance

In year 3 profits are not sufficient to pay dividends, these will not be distributed at all.

[Jindani]

Thank you for your reply, I've one more question
From my calculation I will pay arrearage on fourth year that is $30,000.
I'am not sure about it. Can you please double check it for me

[morgaine300]

Year 3--$40,000 ----------------------------
Year 4--$370,000---230,000 ----140,000

I disagree with these 2 years.

The $40,000 goes to preferred shareholders in year 3. Then $60,000 goes into arrears. (Nothing to common of course.)

In year 4, preferred would get the 100,000 current, the 60,000 from arrears, and the 30,000 participation = 190,000 total. 180,000 would go to common. (the initial 100,000 plus 80,000 that would be left over)

The difference is that the $40,000 never went anywhere at all in either year. The problem says those dividends were paid, and therefore they were paid to the preferred shareholders.

[rehmanvohra]

I disagree with these 2 years.

The $40,000 goes to preferred shareholders in year 3. Then $60,000 goes into arrears. (Nothing to common of course.)

In year 4, preferred would get the 100,000 current, the 60,000 from arrears, and the 30,000 participation = 190,000 total. 180,000 would go to common. (the initial 100,000 plus 80,000 that would be left over)

The difference is that the $40,000 never went anywhere at all in either year. The problem says those dividends were paid, and therefore they were paid to the preferred shareholders.

How can any dividends be paid if the profits for that year are not sufficient to pay $100,000 as dividends to preferred stock holders. Of course, common stoack holders also can not be paid unless the preferred are paid off first.

In the next year when the profits are $370,000, the first payment of $100,000 will be made to preferred stockholders for the previous year and the balance will rank for participation. I think, I made a mistake, the revised distribution will be as follows:

Retained earnings year 3 $40,000
Retained earnings year 4 $370,000
Total Retained earnings $410,000
Distribution:
Preferred year 3 $100,000
Preferred year 4 $130,000
Common - balance $180,000

Thank you morgaine300 I stand corrected.

[Jindani]

But I'm not agree with Year 1 Perefered amount either according to my Calculation 10,000 issued stock @ $100 with 10% commulative = $100,000

[rehmanvohra]

But I'm not agree with Year 1 Perefered amount either according to my Calculation 10,000 issued stock @ $100 with 10% commulative = $100,000

When the preferred shares are participating, the calculation is as follows:
Profit for the year ---------------- $210,000
Preferred dividend @ 10@ ------- (100,000)
Balance available -----------------$110,000
Common dividends 10% ---------(100,000)
Balance available ----------------- 10,000
Extra for preferred shares 3% is $30,000 which is more than the available profits hence all is distributed to preferred shareholders. In this way Preferred get $110,000 and Common get $100,000. I hope it is clear to you now.

[morgaine300]

How can any dividends be paid if the profits for that year are not sufficient to pay $100,000 as dividends to preferred stock holders.

Simple. First, if they have enough to pay $40,000 then they can do so. Just because the required amount is $100,000 doesn't mean the whole thing will necessarily get paid. Anything not paid goes into arrears (if cumulative).

Second. Because the problem said so. It does not say that's the profits. A problem like this doesn't list profits. It lists the amount of dividends paid. It says: "The total dividend payments made during the first five years follow:" You listed them as profits, but it says "payments." I clearly stated in my last post that the problem says those were the payments made. I see problems like this all the time, with a partial payment like that.

[rehmanvohra]

Simple. First, if they have enough to pay $40,000 then they can do so. Just because the required amount is $100,000 doesn't mean the whole thing will necessarily get paid. Anything not paid goes into arrears (if cumulative).

Second. Because the problem said so. It does not say that's the profits. A problem like this doesn't list profits. It lists the amount of dividends paid. It says: "The total dividend payments made during the first five years follow:" You listed them as profits, but it says "payments." I clearly stated in my last post that the problem says those were the payments made. I see problems like this all the time, with a partial payment like that.

Can you please quote a reference from any book on accounting and/or Corporate Law which categorically states that cumulative preferred dividends can be partly paid if the profits are not sufficient to pay the full amount of stated dividends?

I have read accounting books by US authors, namely, Chasteen, Meigs, Simon and Karrenbrock, as well as Kieso. I have also read books by British authors on accounting and corporate law.

[morgaine300]

You are getting into legal issues. I will quote you ONE thing, from a Kieso book:

"A corporation may attach whatever preferences or restrictions, in whatever combination it desires, to a preferred stock issue, as long as it does not specifically violate its state incorporation law."

Yes, I realized that doesn't say they can make a partial dividend payment. The point of that quote is that different states here have different laws. I have never worked for a corporation, I am not a lawyer, and I know very little about the legal issues behind preferred stock because I don't do that stuff and it's all textbook to me. (As it likely is to you.) So I'm not going to start arguing with you over legalities that I don't even know.

Since I see problems do the partial dividend all the time, the only point that matters is that this is what the books are doing. For the third time, that is what the problem says. Why are you ignoring that the problem specifically states that it was paid?

So none of your arguments have any bearing, since that is what the problem says happened, whether you like it or not. If you want to complain about how the problems work and state that you don't agree with what they do, be my guest. I'm not thrilled when problems make no logical sense or when I know they're doing something wrong. However, stop arguing with me over how to correctly do the problem, when the problem itself clearly states what happened. Does the problem say they had $40,000 in profits that year? No, it states that is what was PAID in dividends.

If you really want it, I have probably about seven different principles books sitting around my house, and I can look it up in every single one and see how they handle this type of issue. But since every problem I've ever worked on that had a partial payment like this did it the way I said, I don't care to waste my time looking it up.

Yes, I've forgotten a lot of the technical mumbo-jumbo that comes from intermediate and advanced classes and you know way more of that than I do. (Although you'll forget too.) And I'm not terribly familiar with international stuff.

However, I do know what the principles textbooks that I've worked out of are doing. And since this is homework, and since that is what the problem presents, this is the way it is, and this is the stuff I know.

[rehmanvohra]

I have read and re-read your post with a great deal of patience. The tone adopted by you may appear to be a bit harsh, but I am not that easily offended. Every one makes mistakes - even you and me - and you being a teacher of over 20 years standing, your approach needs to be corrected.

A few things deserve attention:

Yes, I've forgotten a lot of the technical mumbo-jumbo that comes from intermediate and advanced classes and you know way more of that than I do. (Although you'll forget too.) And I'm not terribly familiar with international stuff.

It takes guts to admit one's own faults. Hats off!

Whatever I stated was within logic, but I do not know why you have taken it so seriously. I do not have any doubts about your knowledge and expertise. Why do you get so easily offended. I mean no harm to you at all.

If you do not agree with some one's views, please be patient and explain with reasoning. Please be cool. This is democracy and every one has a right to speak. Remember, President Bush admitted his mistake about weapons of mass destruction in Iraq. He was misguided by his advisers.

[morgaine300]

and you being a teacher of over 20 years standing, your approach needs to be corrected.

I was not being your "teacher" so don't expect that I was attempting to behave like one. I am posting to another poster on a forum. And I was getting annoyed. I'm allowed to get annoyed.

It takes guts to admit one's own faults. Hats off!

How terribly hilarious. The one thing you want to draw attention to, you're wrong about. Everyone forgets a LOT of stuff after they're out of college. They forget stuff one quarter after a class is over. After years, you forget many, many things. It's not a "fault" and the fact that you would think anyone who doesn't have a perfect 100% memory of everything they ever learned in their life to be a "fault" is a bit disconcerting. You do live in a real world, right? (Quite personally, I think you live in textbooks, not the real world.)

So put you hat back on until I admit to something that really is a fault.

Whatever I stated was within logic, but I do not know why you have taken it so seriously.

Mostly because you aren't paying attention. I had to repeat the same thing like three times. It's annoying. I never said there was no logic to your statements - just that it didn't matter cause the problem said otherwise.

If you do not agree with some one's views, please be patient and explain with reasoning.

I tried that and you ignored some very blatant and obvious things that I said. BTW, it wasn't a "view." If you think what the problem said is "my view," then I have to wonder if you still weren't listening the third time.

This is democracy and every one has a right to speak. Remember, President Bush admitted his mistake about weapons of mass destruction in Iraq. He was misguided by his advisers.

Oh, please. I know everyone has a right to speak. I just did. So did you. Was I stopping you from speaking? What on earth does that last statement have to do with anything at all? I mean, what the heck does Bush admitting mistakes have to do me or you? Other than you using it as an excuse to to blabber about Iraq and Bush. You want to blabber about Bush, go over to the political forum - it's nothing to do with me.

[Jindani]

I really appreciated both of you taking interest in my question.

[Monica1966]

So the answer to this question would have been

Total perferred dividend paid in year 1
$100,000

In year 5 the common stock
$100,000

A preferred dividend arrearage was paided in
Year 4

The 3% participation dividend paid on perferred stock in year 2 was
$30,000

Is that what you mean?

[look-like]

So the answer to this question would of been

Total perferred dividend paid in year 1
$100,000

In year 5 the common stock
$100,000

A preferred dividend arrearage was paided in
Year 4

The 3% participation dividend paid on perferred stock in year 2 was
$30,000

Is that what you mean?

Correct answers:
105,000
125,000
4
30,000

After the preferred dividend for the current year and any arrearage for prior years are paid, the extra preferred participation cannot increase the total preferred dividend to an amount greater than the common dividend.

[look-like]

When the preferred shares are participating, the calculation is as follows:
Profit for the year ---------------- $210,000
Preferred dividend @ 10@ ------- (100,000)
Balance available -----------------$110,000
Common dividends 10% ---------(100,000)
Balance available ----------------- 10,000
Extra for preferred shares 3% is $30,000 which is more than the available profits hence all is distributed to preferred shareholders. In this way Preferred get $110,000 and Common get $100,000. I hope it is clear to you now.

I disagree. See answer #15.

[paraclete]

I'm trying to understand, how to calculate dividend distribution and arreage. From the old posts but getting trouble to understand completely
If sombody can tell me how to do that , I really appreciate that

My puzzle question is

Corporation had the following capital stock structure:

Preferred stock--10% cumulative; participating to the extend of 3% above preference rate; par value $100;authorized, 50,000 shares; issued, 10,000 shares.

Common Shares-- Par value $100; authorized, 10,000 shares; issued, 10,000 shares.

The total dividend payments made during the first five years follow:

Year 1--------$210,000
Year 2--------$280,000
Year 3--------$40,000
Year 4--------$370,000
Year 5--------$250,000

I need to understand how to calculate preferred dividend, common dividend, arrearage and how to calculate 3% participation dividend

If some body explain me, I really appriciate that.

See my answer to another question on the same topic