(Preferred Stock Dividends) Cajun Company has outstanding 2,500 shares of \(100 par, 6% preferred stock and 15,000 shares of \)10 par value common. The following schedule shows the amount of dividends paid out over the last 4 years.

Instructions

Allocate the dividends to each type of stock under assumptions (a) and (b). Express your answers in per share amounts using the format shown below

Assumptions
	(a) Preferred, noncumulative And nonparticipating	(b) Preferred, cumulative, and fully participating
Year	Paid-out	Preferred	Common	Preferred	Common
2012	\(13,000
2013	\)26,000
2014	\(57,000
2015	\)76,000

Preferred dividends are dividends paying out to the holders of the company's preferred stock from the company's profits, and preferred stockholders have priority over common stockholders in receiving such dividends, which means that the company must first discharge any subscription obligations for preferred dividends before the company can pay any dividend obligations to preferred stockholders.

The computation for Preferred noncumulative and nonparticipating (a)

Working Notes:

Calculation of Preferred per Share

$\begin{array}{rcl}\mathrm{Preferred}\mathrm{per}\mathrm{share}& =& \mathrm{Shares}\times \mathrm{Par}\mathrm{value}\times \mathrm{rate}\mathrm{of}\mathrm{preferred}\mathrm{stock}\\ & =& 2,500\times \$100\times 6\%\\ & =& \$15,000\end{array}$

Calculation of Common per Share

$\begin{array}{rcl}CommonShares& =& \frac{Common}{Shares}\\ & =& \frac{\$13,000}{\$2,500}\\ & =& \$5.20\end{array}$

Working Notes:-

Computation of Preferred per Share

$\begin{array}{rcl}\mathrm{Preferred}\mathrm{per}\mathrm{share}& =& \frac{\mathrm{Preferred}}{\mathrm{Shares}}\\ & =& \frac{\$15,000}{\$2,500}\\ & =& \$6.00\end{array}$

Computation of Common per Share

$\begin{array}{rcl}\mathrm{Common}\mathrm{per}\mathrm{share}& =& \frac{\mathrm{Common}}{\mathrm{Shares}}\\ & =& \frac{\$11,000}{\$15,000}\\ & =& \$0.73\end{array}$

Working Notes:-

Computation of Preferred per share

localid="1648445816681" $\begin{array}{rcl}\mathrm{Preferred}\mathrm{per}\mathrm{share}& =& \frac{\mathrm{Preferred}}{\mathrm{Shares}}\\ & =& \frac{\$15,000}{\$2,500}\\ & =& \$6.00\end{array}$

Computation of Common per Share

localid="1648445846812" $\begin{array}{rcl}\mathrm{Common}\mathrm{per}\mathrm{share}& =& \frac{\mathrm{Common}}{\mathrm{Shares}}\\ & =& \frac{\$42,000}{\$15,000}\\ & =& \$2.80\end{array}$

Working Notes:-

Computation of Preferred per share

$\begin{array}{rcl}\mathrm{Preferred}\mathrm{per}\mathrm{share}& =& \frac{\mathrm{Preferred}}{\mathrm{Shares}}\\ & =& \frac{\$15,000}{\$2,500}\\ & =& \$6.00\end{array}$

Computation of Common per Share

$\begin{array}{rcl}\mathrm{Common}\mathrm{per}\mathrm{share}& =& \frac{\mathrm{Common}}{\mathrm{Shares}}\\ & =& \frac{\$61,000}{\$15,000}\\ & =& \$4.07\end{array}$

The computation for Preferred cumulative and fully participating (b)

Working Notes:-

Computation of Amount due to preferred

$\begin{array}{rcl}\mathrm{Amount}\mathrm{due}\mathrm{to}\mathrm{preferred}& =& \mathrm{Shares}\times \mathrm{Par}\mathrm{value}\times \mathrm{Preferred}\mathrm{rate}\\ & =& 2,500\times \$100\times 6\%\\ & =& \$15,000\end{array}$

Computation of preferred per Share

$\begin{array}{rcl}\mathrm{Preferred}\mathrm{per}\mathrm{share}& =& \frac{\mathrm{Preferred}}{\mathrm{Share}}\\ & =& \frac{\$13,000}{2,500}\\ & =& \$5.20\end{array}$

Working Notes:-

Computation of Preferred per Share

$\begin{array}{rcl}\mathrm{Preferred}\mathrm{per}\mathrm{share}& =& \frac{\mathrm{Preferred}}{\mathrm{Shares}}\\ & =& \frac{\$15,000}{\$2,500}\\ & =& \$6.00\end{array}$

Computation of Common per Share

$\begin{array}{rcl}\mathrm{Common}\mathrm{per}\mathrm{share}& =& \frac{\mathrm{Common}}{\mathrm{Shares}}\\ & =& \frac{\$9,000}{\$15,000}\\ & =& \$0.60\end{array}$

Working Notes:-

Computation of amount due to preferred

$\begin{array}{rcl}\mathrm{Amount}\mathrm{due}\mathrm{to}\mathrm{preferred}& =& \mathrm{Shares}\times \mathrm{Par}\mathrm{value}\times \mathrm{Preferred}\mathrm{rate}\\ & =& 2,500\times \$100\times 6\%\\ & =& \$15,000\end{array}$

Computation of amount due to common

localid="1648446793286" $\begin{array}{rcl}\mathrm{Amount}\mathrm{due}\mathrm{to}\mathrm{common}& =& \mathrm{Shares}\times \mathrm{Par}\mathrm{value}\times \mathrm{Preferred}\mathrm{rate}\\ & =& 1,500\times \$100\times 6\%\\ & =& \$9,000\end{array}$

Computation of Rate of Participation

$\begin{array}{rcl}\mathrm{Rate}\mathrm{of}\mathrm{participation}& =& \frac{\mathrm{Par}\mathrm{value}\mathrm{of}\mathrm{stock}}{\mathrm{Amount}\mathrm{available}\mathrm{for}\mathrm{participation}}\\ & =& \frac{400,000}{33,000}\\ & =& 8.25\%\end{array}$

Calculation of Participating dividend-Preferred

$\begin{array}{rcl}\mathrm{Participating}\mathrm{dividend}& =& \mathrm{Rate}\mathrm{of}\mathrm{participation}\times \mathrm{Preferred}\\ & =& 8.25\%\times \$250,000\\ & =& \$20,625\end{array}$

Calculation of Participating dividend-Common

$\begin{array}{rcl}\mathrm{Participating}\mathrm{dividend}& =& \mathrm{Rate}\mathrm{of}\mathrm{participation}\times common\\ & =& 8.25\%\times \$150,000\\ & =& \$12,375\end{array}$

Calculation of amount Common per share

$\begin{array}{rcl}\mathrm{Common}\mathrm{per}\mathrm{share}& =& \frac{\mathrm{Common}\mathrm{amount}}{\mathrm{Preferred}\mathrm{amount}}\\ & =& \frac{15,000}{9,000}\\ & =& 0.60\end{array}$

Computation of Total Amount per Share – Preferred

localid="1648447631028" $\begin{array}{rcl}\mathrm{Total}\mathrm{amount}\mathrm{per}\mathrm{share}& =& \frac{\mathrm{Current}+\mathrm{Participation}\mathrm{amount}}{\mathrm{Share}}\\ & =& \frac{\$15,000+\$20,625}{2,500}\\ & =& \$14.25\\ & & \end{array}$

Computation of Total Amount per Share – Common

$\begin{array}{rcl}\mathrm{Total}\mathrm{amount}\mathrm{per}\mathrm{share}& =& \frac{\mathrm{Current}+\mathrm{Participation}\mathrm{amount}}{\mathrm{Share}}\\ & =& \frac{\$9,000+\$12,375}{1,500}\\ & =& \$1.43\end{array}$

Computation of amount due to preferred

$\begin{array}{rcl}\mathrm{Amount}\mathrm{due}\mathrm{to}\mathrm{preferred}& =& \mathrm{Shares}\times \mathrm{Par}\mathrm{value}\times \mathrm{Preferred}\mathrm{rate}\\ & =& 2,500\times \$100\times 6\%\\ & =& \$15,000\end{array}$

Computation of amount due to common

$\begin{array}{rcl}\mathrm{Amount}\mathrm{due}\mathrm{to}\mathrm{common}& =& \mathrm{Shares}\times \mathrm{Par}\mathrm{value}\times \mathrm{Preferred}\mathrm{rate}\\ & =& 1,500\times \$100\times 6\%\\ & =& \$9,000\end{array}$

Computation of Rate of Participation

$\begin{array}{rcl}\mathrm{Rate}\mathrm{of}\mathrm{participation}& =& \frac{\mathrm{Par}\mathrm{value}\mathrm{of}\mathrm{stock}}{\mathrm{Amount}\mathrm{available}\mathrm{for}\mathrm{participation}}\\ & =& \frac{400,000}{52,000}\\ & =& 13\%\end{array}$

Calculation of Participating dividend-Preferred

$\begin{array}{rcl}\mathrm{Participating}\mathrm{dividend}& =& \mathrm{Rate}\mathrm{of}\mathrm{participation}\times \mathrm{Preferred}\\ & =& 13\%\times \$250,000\\ & =& \$32,500\end{array}$

Calculation of Participating dividend-Common

$\begin{array}{rcl}\mathrm{Participating}\mathrm{dividend}& =& \mathrm{Rate}\mathrm{of}\mathrm{participation}\times \mathrm{Preferred}\\ & =& 13\%\times \$150,000\\ & =& \$19,500\end{array}$

Computation of Total Amount per Share – Preferred

$\begin{array}{rcl}\mathrm{Total}\mathrm{amount}\mathrm{per}\mathrm{share}& =& \frac{\mathrm{Current}+\mathrm{Participation}\mathrm{amount}}{\mathrm{Share}}\\ & =& \frac{\$15,000+\$32,500}{2,500}\\ & =& \$19.00\end{array}$

Computation of Total Amount per Share – Common

$\begin{array}{rcl}\mathrm{Total}\mathrm{amount}\mathrm{per}\mathrm{share}& =& \frac{\mathrm{Current}+\mathrm{Participation}\mathrm{amount}}{\mathrm{Share}}\\ & =& \frac{\$19,000+\$19,500}{1,500}\\ & =& \$1.90\end{array}$