Asked by Lasha Petree on Jul 07, 2024
Verified
Alpha-Omega Industries has 30,000 shares of $12 par common stock and 15,000 shares of $50 par, 5% preferred stock outstanding. Total dividends available are $162,000. Compute the dividends to be distributed to preferred and common stockholders under the following condition.
The preferred stock is participating and non-cumulative with no dividends distributed last year.
Participating
In finance, it often refers to securities or investments that have the potential to share in additional earnings or payouts beyond a predetermined amount.
Non-cumulative
Referring to preferred stocks or dividends that do not accumulate or carry forward unpaid dividend amounts if they are not declared in a given period.
Preferred Stock
A category of corporate equity that takes precedence over common stock in terms of asset claims and earnings, typically offering stable dividend payments.
- Determine the allocation of dividends for different scenarios involving preferred stock.
Verified Answer
Dividend for Common Stock: $12 par × 5% × 30,000 shares = $18,000
Preferred total par = $50 par × 15,000 shares = $750,000
Common total par = $12 par × 30,000 shares = $360,000
Remainder of dividend: $162,000 - ($37,500 + $18,000) = $106,500
Preferred: $750,000/$1,110,000 × $106,500 = $71,959.46
Common: $360,000/$1,110,000 × $106,500 = $34,540.54
TOTAL Preferred: $37,500 + $71,959.46 = $109,459.46
TOTAL Common: $18,000 + $34,540.54 = $52,540.54
Learning Objectives
- Determine the allocation of dividends for different scenarios involving preferred stock.
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