Herr Corporation has 2,500 shares of 7%, $100 par value preferred stock outstand

Question

Herr Corporation has 2,500 shares of 7%, $100 par value preferred stock outstanding at December 31, 2017. At December 31, 2017, the company declared a $145,000 cash dividend.

Determine the dividend paid to preferred stockholders and common stockholders under each of the following scenarios.

1. The preferred stock is noncumulative, and the company has not missed any dividends in previous years.

2. The preferred stock is noncumulative, and the company did not pay a dividend in each of the two previous years.

3. The preferred stock is cumulative, and the company did not pay a dividend in each of the two previous years.

The dividend paid to preferred stockholders $ The dividend paid to common stockholders $

Explanation / Answer

Dividend to Preferred shareholders = $100@7% = $7 per share

so for 2500 share = 2,500*7             = $17,500

3)Arrears   17,500*2    = $35,000

this year                      =    17,500

Dividend to Preferred shareholders = $100@7% = $7 per share

so for 2500 share = 2,500*7             = $17,500

Dividend to preferred shareholders $17,500 Dividend to common shareholder145,000- 17,500 $127,500 2)Same as above since preference shares are non cumulative

3)Arrears   17,500*2    = $35,000

this year                      =    17,500

Dividend to preferred shareholders $52,500 Dividend to common shareholders 92,500

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