Dividends Per Share Fairmount Inc., a developer of radiology equipment, has stoc
ID: 2492632 • Letter: D
Question
Dividends Per Share Fairmount Inc., a developer of radiology equipment, has stock outstanding as follows: 15,000 shares of cumulative preferred 1% stock, $140 par, and 50,000 shares of $20 par common. During its first four years of operations, the following amounts were distributed as dividends: first year, $14,100; second year, $19,500; third year, $58,900; fourth year, $103,000. Calculate the dividends per share on each class of stock for each of the four years. Round all answers to two decimal places. If no dividends are paid in a given year, enter "0".
Preferred stock (dividend per share) Common stock (dividend per share)
1st Year
2nd Year
3rd Year
4th Year
Explanation / Answer
Solution: 1. Dividends shall be firstly paid to Cumulative Preferred stock holders and then to common stock holders. 2. A cumulative preferred stock is a type of preferred stock with a provision that stipulates that if any dividends have been omitted in the past, they must be paid out to preferred shareholders first, before common shareholders can receive dividends. Dividend to be distributed to Preferred share holders per year = 15,000*140*1% = $21,000 Year 1 Total Dividend distributed in year 1 =14,100 Dividend Accumulated for Preferred stock holders in year 1 = 21,000 - 14,100 = $6,900 Year 2 Total Dividend distributed in year 2 = $19,500 Dividend Accumulated for Preferred stock holders in year 2 = 21,000 - 19,500 = $1,500 Total Dividend accrued for year 1 & 2 =6,900+1,500 = $8,400 Year 3 Total Dividend distributed in year 3 = $58,900 Dividend Attributable to Preferred stock holders in year 3 = 21,000+8,400 = 29,400 Dividend Attributable to Common stock holders in year 3 = 58,900 - 29,400 = $ 29,500 Year 4 Total Dividend distributed in year 2 = $1,03,000 Dividend Attributable to Preferred stock holders in year 3 = 21,000 Dividend Attributable to Common stock holders in year 3 = 103,000 - 21,000 = $ 82,000 Statement showing dividend distributed per share Year Preferred stock Common stock Total Per share Total Per share 1 14,100 14100/15000 = 0.94 0 0 2 19,500 19500/15000 = 1.30 0 0 3 29,400 29400/15000 = 1.96 29500 0.59 4 21,000 21000/15000 = 1.4 82000 1.64