This exercise will illustrate the allocation of dividends when a corporation has both preferred stock and common stock.
Charlie B. Daly Corporation has the following stock outstanding without any changes for years 2013, 2014, and 2015.
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50.000 shares of $10 par. 4% preferred |
$500.000 |
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200.000 shares of $5 par common |
1.000.000 |
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$1.500.000 |
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Dividends are declared as follows: |
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2013 |
$15,000 |
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2014 |
$50.000 |
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2015 |
$72,000 |
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Instructions
Compute the amount of dividends (total and per share) to be allocated to the preferred stockholders and the common stockholders for each of the three years under the independent assumptions below.
(a) The preferred stock is noncumulative.
(b) The preferred stock is cumulative.