exercises F1

Question 1

Division Corporation has 20,000 shares of $5.00 participating 9 percent cumulative preferred stock and 100,000 shares of $2.00 common stock. On July 1, the board of Division declared a $30,000 dividend at the time the common stock was selling for $25 per share and the preferred stock was selling for $30. The total dividends paid to each class of stock on the payment date was:

Answer 1

Total Dividends declared: $30,000

1. Div distributed first: # Shares x par x participation of Div rate
2. Relative cap = Dividends ratio on participation cs/total & ps/total
3. Remaining Div distributed: multiply relative cap to remaining undistributed div

so:
1. p/s: 20,000x$5x9% = $9,000 Div
c/s: 100,000x$2.00x9%=$18,000 Div
so total distributed 9+18=$27,000 Div, so remaining is $3,000
2. relative cap: p/s: 9/27=33%
relative cap: c/s: 18/27=66%
3. remaining Div to p/s: 33%x$3,000= 10,000
rem. Div to c/s: 66%x$3,000=$2,000
4. So total Div for p/s: $10,000
total Div for c/s: $20,000