Question

York’s outstanding stock consists of 80,000 shares of noncumulative 7.5% preferred stock with a \(5 par value and also 200,000 shares of common stock with a \)1 par value. During its first four years of operation, the corporation declared and paid the following total cash dividends:

2015 total cash dividends . . . . . . . . . . . . . . $ 20,000

2016 total cash dividends . . . . . . . . . . . . . . 28,000

2017 total cash dividends . . . . . . . . . . . . . . 200,000

2018 total cash dividends . . . . . . . . . . . . . . 350,000

Determine the amount of dividends paid each year to each of the two classes of stockholders: preferred and common. Also compute the total dividends paid to each class for the four years combined

Short answer

Preferred shareholders will receive $108,000 in total four years, and $20,000, $28000, $30,000 and $30,000 in Year 2015, 2016, 2017 and 2018, respectively.

Common shareholders will receive $490,000 in total four years, and $0, $0, $170,000 and $320,000 in Year 2015, 2016, 2017 and 2018, respectively.

Step-by-step solution

Step 1: Explanation on noncumlativepreference shares

Noncumulative preference shareholders lose any dividends that are not declared in the current year.

Step 2: Calculation ofnoncumlativepreference dividend

$\begin{array}{c}\mathrm{Non}-\mathrm{cumulativepreferencedividend}=\mathrm{Numberofpreferredshares}\\ \times \mathrm{Parvalue}\times \mathrm{Dividendrate}\\ \mathbf{=}\mathbf{80}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{\$}\mathbf{5}\mathbf{\times }\mathbf{7}\mathbf{.}\mathbf{5}\mathbf{\%}\\ =\$30,000\end{array}$

Calculation of dividends of each year and total

	Noncumulative Preference shares	Common Stock
2015 total cash dividends	$ 20,000	-
2016 total cash dividends	28,000	-
2017 total cash dividends	30,000	170,000
2018 total cash dividends	30,000	320,000
Total Dividend to each class of stockholders	$ 108,000	$ 490,000