Dividends per share Triple Z Inc., a developer of radiology equipment, has stock outstanding as follows: 12,000 shares of cumulative preferred 2% stock, $150 par and 50,000 shares of $10 par common. During its first four year of operations, the following amounts were distributed as dividends: first year, $27,000; second year, $60,000, third year, $80,000, fourth year, $90,000. Calculate the dividends per share on each class of stock for each of the four years.

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To determine Cash dividends : The amount of cash provided by a corporation out of its distributable profits to its shareholders as a return for the amount invested by them is referred as cash dividends. Common stock : These are the ordinary shares that a corporation issues to the investors in order to raise funds. In return, the investors receive a share of profit from the profits earned by the corporation. The dividend payments are not guaranteed and are paid after the payment made to the preferred stockholders. Preferred stock : The stock that provides a fixed amount of return (dividend) to its stockholder before paying dividends to common stockholders is referred as preferred stock. A preferred stock may be cumulative and non-cumulative. A cumulative preferred stock implies that a preferred stockholder is entitled to receive dividends for the current year plus any unpaid dividends of the previous years, before the dividends paid to the common stockholders. Dividend per share: Dividend per share represents the amount of dividend paid to each shareholders of the business. To determine: The dividends per share for preferred and common stock for each year. Explanation In first year, T Incorporation has paid only $27,000 as dividend in total. Therefore, preference shareholders get only $27,000 as dividends in first year; remaining balance of $9,000 ( $ 36 , 000 ( 1 ) − $ 27 , 000 ) would be paid as dividend in arrears in future. In second year, T Incorporation has paid $60,000 as dividend in total. Therefore, preference shareholders get $45,000 as dividends in second year, which includes $36,000 for current year plus $9,000 dividends in arrears. Common stockholders gets dividend of $15,000, after $45,000 payment made as preferred dividends. In third year, T Incorporation has paid $80,000 as dividend in total

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Financial & Managerial Accounting

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Carl Warren + 2 others

Publisher: Cengage Learning

ISBN: 9781285866307

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To determine

Cash dividends: The amount of cash provided by a corporation out of its distributable profits to its shareholders as a return for the amount invested by them is referred as cash dividends.

Common stock: These are the ordinary shares that a corporation issues to the investors in order to raise funds. In return, the investors receive a share of profit from the profits earned by the corporation. The dividend payments are not guaranteed and are paid after the payment made to the preferred stockholders.

Preferred stock: The stock that provides a fixed amount of return (dividend) to its stockholder before paying dividends to common stockholders is referred as preferred stock.

A preferred stock may be cumulative and non-cumulative. A cumulative preferred stock implies that a preferred stockholder is entitled to receive dividends for the current year plus any unpaid dividends of the previous years, before the dividends paid to the common stockholders.

Dividend per share:

Dividend per share represents the amount of dividend paid to each shareholders of the business.

To determine: The dividends per share for preferred and common stock for each year.

Explanation of Solution

In first year, T Incorporation has paid only $27,000 as dividend in total. Therefore, preference shareholders get only $27,000 as dividends in first year; remaining balance of $9,000 ($36,000(1)−$27,000) would be paid as dividend in arrears in future.

In second year, T Incorporation has paid $60,000 as dividend in total. Therefore, preference shareholders get $45,000 as dividends in second year, which includes $36,000 for current year plus $9,000 dividends in arrears. Common stockholders gets dividend of $15,000, after $45,000 payment made as preferred dividends.

In third year, T Incorporation has paid $80,000 as dividend in total

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