Sabas Company has 20,000 shares of $100 par, 2% cumulative preferred stock and 100,000 shares of $50 par common stock. The following amounts were distributed as dividends:Year 1$10,000Year 245,000Year 390,000Determine the dividends per share for preferred and common stock for the second year.

Question

Sabas Company has 20,000 shares of $100 par, 2% cumulative preferred stock and 100,000 shares of $50 par common stock. The following amounts were distributed as dividends:Year 1$10,000Year 245,000Year 390,000​Determine the dividends per share for preferred and common stock for the second year.

Quizplus · Accepted Answer

In the second year, the total dividends distributed are $45,000. The preferred stock dividends are calculated first because they are cumulative and have priority over common stock dividends. The annual dividend for preferred stock is 2% of the $100 par value, which equals $2 per share. With 20,000 shares, the total preferred dividends are $40,000 ($2 * 20,000). Since only $10,000 was paid in the first year, the remaining $30,000 is paid in the second year, leaving $15,000 ($45,000 - $30,000) for the current year's preferred dividends. This fully covers the $40,000 needed for the current year's preferred dividends, with no remaining amount for common stock dividends. Therefore, preferred stockholders receive $2.25 per share ($45,000 total for preferred dividends divided by 20,000 shares), and common stockholders receive $0.

Sabas Company Has 20,000 Shares of $100 Par, 2% Cumulative