Imaging Inc., a developer of radiology equipment, has stock outstanding as follows: 20,000 shares of cumulative preferred 4% stock, $140 par, and 67,000 shares of $10 par common. During its first four years of operations, the following amounts were distributed as dividends: first year, $75,000; second year, $159,000; third year, $190,300; fourth year, $205,130.

Requried:

Compute the dividends per share on each class of stock for each of the four years.

Dividend per Share:

1st Year

Preferred dividend per share = $3.75

Common dividend per share = $0

2nd Year

Preferred dividend per share = $7.45

Common dividend per share = $0.149

3rd Year

Preferred dividend per share = $5.6

Common dividend per share = $1.169

4th Year

Preferred dividend per share = $5.6

Common dividend per share = $1.39

Explanation:

The cumulative preferred stock is the stock which accumulates or accrues dividends in case the dividends are not paid or partially paid in a particular year. These accumulated dividends or dividends in arrears are paid whenever the company declares dividends next time.

Preferred dividend per year = 20000 * 140 * 0.04 = $112000

1st year

Preferred dividend = 75000

Preferred dividend per share = 75000 / 20000 = $3.75 per share

Accumulated preferred dividends = 112000 - 75000 = $37000

Common dividend = 0

Common dividend per share = 0

2nd year

Preferred dividend = 37000 + 112000

Preferred dividend per share = 149000 / 20000 = $7.45 per share

Common dividend = 10000

Common dividend per share = 10000 / 67000 = $0.149 per share

3rd year

Preferred dividend = 112000

Preferred dividend per share = 112000 / 20000 = $5.6 per share

Common dividend = 78300

Common dividend per share = 78300 / 67000 = $1.169 per share

4th year

Preferred dividend = 112000

Preferred dividend per share = 112000 / 20000 = $5.6 per share

Common dividend = 93130

Common dividend per share = 93130 / 67000 = $1.39 per share