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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

A Dividends per share

Reinhardt Furniture Company has 40,000 shares of cumulative preferred 2% stock, $150 par, and 100,000 shares of $5 par common stock. The following amounts were distributed as dividends:

Year 1 $70,000
Year 2 200,000
Year 3 320,000

Determine the dividends per share for preferred and common stock for each yea r.

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

Determine the dividends per share for preferred and common stock for each year.

Particulars Year 1 Year 2 Year 3
Amount distributed $70,000 $200,000 $320,000
Preferred dividend $70,000 $170,000 $120,000
Common dividend $0 $30,000 $200,000
Dividend per share:
    Preferred stock (Preferred dividend40,000 preference shares) $1.75 $4.25 $3.00
    Common stock (Common dividend100,000 common shares) None $0.30 $2.00

Table (1)

Working note:

Calculate the amount to be paid as preferred dividend each year

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