Andrews Company has $80,000 available to pay dividends. It has 2,000 shares of 1
ID: 2459115 • Letter: A
Question
Andrews Company has $80,000 available to pay dividends. It has 2,000 shares of 10%, $100 par, preferred stock and 30,000 shares of $10 par common stock outstanding. The preferred stock is selling for $125 per share, and the common stock is selling for $20 per share.
1. Determine the amount of dividends to be paid to each class of shareholder for each of the following independent assumptions. If an amount box required no entry, leave it blank.
a. Preferred stock is nonparticipating and noncumulative.
Preferred Common
Preferred Dividend xxxx (need answer) No answer required
Remainder xxxx (need answer) 60,000 answered
Total 20,000 answered 60,000 answered
Explanation / Answer
Preferred stock is non-participating and non-cumulative. This means that the preferred stock holders are paid fixed dividend only.
Preferred shares outstanding = 2000 shares
Par value of preferred stock = $100
Total value of preferred stock = $100 * 2000 shares = $200,000
Rate of dividend = 10%
Dividend amount to be paid to preferred stock holders = $200,000 * 10% = $20,000
Remainder $60,000 shall be paid to common stock holders. Since the preferred stock is non-participating, no remainder amount is payable to preferred stock.