Question: Dividends on Preferred and Common Stock.?
Love Theatre Inc. owns and operates movie theaters throughout New Mexico and Utah. Love Theatre has declared the following annual Dividends over a six-year period:
2007, $16,000
2008, $48,000
2009, $65,000
2010, $90,000
2011, $115,000
2012, $140,000
During the entire period ending December 31 of each year, the outstanding Stock of the company was composed of 25,000 shares of cumulative, 2% Preferred stock, $80 par, and 100,000 shares of Common stock, $4 par.
Calculate the total dividends and the per-share dividends declared on each class of stock for each of the six years. There were no dividends in arrears on January 1, 2007.
Please explain it for me clearly step by step, just don't give me the answer only because I'm trying to figure it out for the midterm which is really important.
Thank you so much!
Answer:
Yahoo Answer is not set-up to present clean tables, but here you go. You should add one more column to my table marked Total Dividends directly after the year and before my first column and copy it from your table above.
To solve it you first need to compute the amount of dividend needed to satisfy the preferred stock. At $80 par x 2% = $1.60/share. There are 25,000 outstanding x $1.60 = $40,000 which is the annual amount needed to satisfy the preferred. Because this is a cumulative preferred, if there is not enough money in the pot to pay that amount in full, it is counted as a deficit and must be paid out of future dividends available. The par value of the common stock has no influence on the payment of the common's dividend.
...............Pref. Div. ..Pref. Div. Deficit ..Pref. Div./share .. Common Div. ..C.Div./share
Yr 2007: $16,000 .... $24,000 ............. $0.64 .................$0 ..................$0
Yr 2008: $48,000 .... $16,000 ............. $1.92 .................$0 ..................$0
Yr 2009: $56,000 .... $0 ..................... $2.24 .................$9,000 ............$0.09
Yr 2010: $40,000 .... $0 ..................... $1.60 .................$50,000 ..........$0.50
Yr 2011: $40,000 .... $0 ..................... $1.60 .................$75,000 ..........$0.75
Yr 2012: $40,000 .... $0 ..................... $1.60 .................$100,000 ........$1.00