Asked by Allie Spolsdoff on Jul 09, 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 cumulative with no dividends distributed last year.
Participating
In finance, it often refers to securities or policies that allow owners to receive dividends, or share in profits beyond a specified amount.
Cumulative
Refers to something increasing in quantity, degree, or force by successive additions, often used in the context of cumulative dividends or interest.
- Determine the dividend payments on preferred and common stock in a range of situations, covering both cumulative and non-cumulative, alongside participating and nonparticipating preferences.
Verified Answer
AK
Ahlam KablawiJul 11, 2024
Final Answer :
Dividend for Preferred Stock: $50 par × 5% × 15,000 shares × 2 = $75,000
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 - ($75,000 + $18,000) = $69,000
Preferred: $750,000/$1,110,000 × $69,000 = $46,621.62
Common: $360,000/$1,110,000 × $69,000 = $22,378.38
TOTAL Preferred: $75,000 + $46,621.62 = $121,621.62
TOTAL Common: $18,000 + $22,378.38 = $40,378.38
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 - ($75,000 + $18,000) = $69,000
Preferred: $750,000/$1,110,000 × $69,000 = $46,621.62
Common: $360,000/$1,110,000 × $69,000 = $22,378.38
TOTAL Preferred: $75,000 + $46,621.62 = $121,621.62
TOTAL Common: $18,000 + $22,378.38 = $40,378.38
Learning Objectives
- Determine the dividend payments on preferred and common stock in a range of situations, covering both cumulative and non-cumulative, alongside participating and nonparticipating preferences.