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 Year 1, preferred dividends should be $40,000 (20,000 shares x $100 x 2%), but only $10,000 was paid, leaving $30,000 in arrears. In Year 2, $45,000 was distributed. First, the $30,000 arrears is paid, leaving $15,000 for Year 2 preferred dividends. Thus, preferred dividends per share for Year 2 is $0.75 ($15,000/20,000 shares). Common stock receives no dividends in Year 2.

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