Stockholders’ equity of Ernst Company consists of 78,000 shares of $5 par value,
ID: 2721537 • Letter: S
Question
Stockholders’ equity of Ernst Company consists of 78,000 shares of $5 par value, 10% cumulative preferred stock and 270,000 shares of $1 par value common stock. Both classes of stock have been outstanding since the company’s inception. Ernst did not declare any dividends in the prior year, but it now declares and pays a $115,000 cash dividend at the current year-end. Determine the amount distributed to each class of stockholders for this two-year-old company. I need the par value for preffered share, the dividend rate, the dividend per preferred share, the number of preferred shares, preferred dividend for two years, total cash dividend, to preferred share holders, and to common share holders.
Explanation / Answer
Par value for preffered share = $5 * 78000 = $390000
The dividend rate for preferred shares = 5%
The dividend per preferred share = 10% * $5 = $0.5
The number of preferred shares = 78000
Preferred dividend for two years = $390000 * 10% * 2 = $78000
Total cash dividend to preferred share holders = $78000
Total cash dividend to common share holders = $115000 - $78000 = $37000