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: $\begin{array}{lr}
\text { Year 1: } & \$ 10,000 \
\text { Year 2: } & 45,000 \
\text { Year 3: } & 90,000
\end{array}$
Determine the dividends per share for preferred and common stock for the first 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: $\begin{array}{lr}
\text { Year 1: } & \$ 10,000 \
\text { Year 2: } & 45,000 \
\text { Year 3: } & 90,000
\end{array}$ 
 Determine the dividends per share for preferred and common stock for the first year.

Quizplus · Accepted Answer

The preferred stock dividends are calculated first. With 20,000 shares at $100 par and a 2% dividend rate, the annual preferred dividend is $40,000 (20,000 * $100 * 2%). In Year 1, only $10,000 was distributed, which is less than the $40,000 needed for preferred dividends, so all goes to preferred shareholders, leaving nothing for common shareholders. Therefore, preferred shareholders receive $0.50 per share ($10,000 / 20,000 shares), and common shareholders receive $0.00.

Sabas Company Has 20,000 Shares of $100 Par, 2% Cumulative Year 1: $10,000 Year 2: 45,000 Year 3: 90,000\begin{array}{lr}\text { Year 1: } & \$ 10,000 \\\text { Year 2: } & 45,000 \\\text { Year 3: } & 90,000\end{array} Year 1: Year 2: Year 3: ​$10,00045,00090,000​

Sabas Company Has 20,000 Shares of $100 Par, 2% Cumulative $\begin{array}{lr}\text { Year 1: } & \$ 10,000 \\\text { Year 2: } & 45,000 \\\text { Year 3: } & 90,000\end{array}$