Dividends on Preferred and Common Stock Love Theatre Inc. owns and operates movi
ID: 2422200 • Letter: D
Question
Dividends on Preferred and Common Stock
Love Theatre Inc. owns and operates movie theaters throughout New Mexico and Utah. Love Theatre has declared the following annual dividends over a six-year period ending December 31 of each year: Year 1, $30,000; Year 2, $37,500; Year 3, $60,000; Year 4, $180,000; Year 5, $225,000; and Year 6, $270,000. During the entire period, the outstanding stock of the company was composed of 25,000 shares of 3% preferred stock, $100 par, and 100,000 shares of common stock, $25 par.
To calculate dividends, you need to understand the following:
1) Preferred dividends are always paid before Common dividends. Whatever is left over after paying preferred stockholders goes to common stockholders.
2) Preferred dividends per share are calculated by multiplying the par value of the stock (per share) by the percentage shown on the stock. For example, 5% Preferred, $100 par value would be paid annual dividends of $5 per share. (Sometimes preferred stock is shown with a dollar amount instead of a percentage. In this case, the dollar amount is the amount of annual dividend per share. For example, $3 Preferred, $100 par value would be paid annual dividends of $3 per share.)
3) The par value of common stock never enters into the calculation of common dividends. Common stockholders simply receive whatever dividends are left over after the preferred dividends are paid (if there is anything left over). Common dividends are distributed evenly to each share. For example, if there is $10,000 left over after paying preferred dividends, and there are 100,000 shares of common stock outstanding, each share of common stock would receive $.10 in dividends.
4) Dividends are never paid on shares of treasury stock (stock the company has purchased back from common stockholders).
Instructions:
1. Determine the total dividends and the per-share dividends declared on each class of stock for each of the six years. If required, round your answers to the nearest cent. If the amount is zero, please enter "0".
Preferred Dividends (25,000 shares) Common Dividends (100,000 shares) Year Total Dividends Total Per Share Total Per Share Year 1 $ 30,000 $ $ $ $ Year 2 37,500 Year 3 60,000 Year 4 180,000 Year 5 225,000 Year 6 270,000Explanation / Answer
Note:
Preferred dividend per share = 3% of $100 = $3. Preferred dividend for 25000 shares = $3 x 25000 = $75000
Year Total dividends ($) Preferred dividends (25000 shares) Common Dividends (100000 shares) Total ($) Per Share($) Total ($) Per Share($) 1 30000 30000 1.2 0 0 2 37500 37500 1.5 0 0 3 60000 60000 2.4 0 0 4 180000 75000 3 105000 1.05 5 225000 75000 3 150000 1.5 6 270000 75000 3 195000 1.95