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9 September, 15:17

Analyzing Cash Dividends on Preferred and Common Stock Potter Company has outstanding 15,000 shares of $50 par value, 8% preferred stock and 50,000 shares of $5 par value common stock. During its first three years in business, it declared and paid no cash dividends in the first year, $280,000 in the second year, and $60,000 in the third year. (a) If the preferred stock is cumulative, determine the total amount of cash dividends paid to each class of stock in each of the three years. (b) If the preferred stock is noncumulative, determine the total amount of cash dividends paid to each class of stock in each of the three years.

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  1. 9 September, 18:09
    0
    year 1

    P = 0

    CS = 0

    year 2

    P = 120,000

    CS = 160,000

    year 3

    P = 60,000

    CS = 0

    Total

    P = 180,000

    CS = 160,000

    Explanation:

    preferred stock

    15,000 shares x $50 each = 750,000

    dividends 750,000 x 8% = 60,000 per year (cumulative)

    when the dividends are cumulatives, it means the unpaid portion is carried over the period until payment.

    first year 0 dividends accumulated 60,000

    second year 280,000 dividends

    firs year preferred (60,000)

    second year preferred (60,000)

    available for common stock 160,000

    third year 60,000 dividends

    preferred dividends (60,000)

    available for CS 0

    total for preferred stock 60,000 x 3 = 180,000

    total for cs 160,000 at year 2
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