Cooper Industries, Inc. began 2012 with retained earnings of $25.32 million. During the year it paid four quarterly dividends of $0.35 per share to 2.75 million common stockholders. Preferred stockholders, holding 500,000 shares, were paid two semiannual dividends of $0.75 per share. The firm had a net profit after taxes of $5.15 million. Solve for Annual Cash Dividends Preferred Stock, Annual Cash Dividends Common Stock, Total Dividends Paid, and Retained earnings balance (December 31, 2012). A. $950,000; $5,850,000; $6,600,000; $27,870,000 B. $850,000; $4,850,000; $5,600,000; $26,870,000 C. $750,000; $3,850,000; $4,600,000; $25,870,000 D. $650,000; $2,850,000; $3,600,000; $24,870,000

The correct answer is option C:

$750,000; $3,850,000; $4,600,000; $25,870,000

Task 1

Annual cash dividend preferred stock = $750,000

Task 2

Total annual common stock dividend = $3,850,000

Task 3

Total dividend paid = $4,600,000

Task 4

Retained earnings balance = $25,870,000

Explanation:

Task 1:

Annual cash dividend preferred stock

Preferred shares = 500,000 shares

semi-annual dividend (after six months) = $0.75 per share

500,000 shares * 0.75 per share * 2 times = $750,000 (A)

Task 2:

Total annual common stock dividend

Quarterly dividend = $0.35 per share

Common shares = 2,750,000 shares

Total quarterly dividend = 2,750,000 * $0.35 per share

Total quarterly dividend = $962,500

Total annual common stock dividend = $962,500 * 4

Total annual common stock dividend = $3,850,000 (B)

Task 3

Total dividend paid

Total dividend paid (A+B) = Annual cash dividend - preferred stock + Total annual common stock dividend

Total dividend paid = $750,000 + $3,850,000

Total dividend paid = $4,600,000

Task 4

Retained earnings balance

Retained earnings balance = Opening retained earnings + Net income after total cash dividend paid

Retained earnings balance = $25,320,000 + $5,150,000 - $4,600,000

Retained earnings balance = $25,870,000