Boise Bike Corp. manufactures mountain bikes and distributes them through retail
ID: 2363017 • Letter: B
Question
Boise Bike Corp. manufactures mountain bikes and distributes them through retail outlets in Montana, Idaho, Oregon, and Washington. Boise Bike Corp. has declared the following annual dividends over a six-year period ending December 31 of each year: 2007, $8,000; 2008, $24,000; 2009, $60,000; 2010, $75,000; 2011, $80,000; and 2012, $98,000. During the entire period, the outstanding stock of the company was composed of 20,000 shares of 2% cumulative preferred stock, $75 par, and 50,000 shares of common stock, $5 par. 1. Determine the total dividends and the per-share dividends declared on each class of stock for each of the six years. There were no dividends in arrears on January 1, 2007. Summarize the data in tabular form. If required, round your answers to two decimal places. If the amount is zero, please enter "0".Explanation / Answer
With preferred cumulative dividends, any preferred dividends in arrears must be paid before common shareholders receive dividends. 1) 10,000 x 2% x 100 = $20,000 dividends owed to preferred shareholders each year 2005 5,000 Preferred Total $5,000 5,000 / 10,000 = $0.50 per share, $15,000 dividends is in arrears Common 0 2006 18,000 Preferred Total $18,000 18,000 / 10,000 = $1.80 per share. There is now $17,000 dividends in arrears Common 0 2007 45,000 Preferred Total $37,000 37,000 / 10,000 = $3.70 per share. There are now 0 dividends in arrears Common Total $8,000 8,000 / 25,000 = $0.32 per share 2008 45,000 Preferred Total $20,000 20,000 / 10,000 = $2 per share Common Total $25,000 25,000 / 25,000 = $1 per share 2009 60,000 Preferred Total $20,000 20,000 / 10,000 = $2 per share Common Total $40,000 40,000 / 25,000 = $1.60 per share 2010 67,000 Preferred Total $20,000 20,000 / 10,000 = $2 per share Common Total $47,000 47,000 / 25,000 = $1.88 per share 2. Determine the average annual dividend per share for each class of stock for the six year period. Since there are no preferred dividends in arrears at the end of the six year period, annual dividend per share for preferred stock is $2.00 per share, the same amount they are owed every year. For common share holders, first add up total dividends paid to them. 8,000 + 25,000 + 40,000 + 47,000 = 120,000 There were 25,000 shares outstanding each year and there were six years. 6.x 25,000 = 150,000. 120,000 / 150,000 = $0.80 average annual dividend per share for common stock. 3) Not sure about this one. Maybe someone else can help.