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PA11-4 Comparing Stock and Cash Dividends [LO2, LO3, LO4]

Ritz Company had the following stock outstanding and Retained earnings at December 31, 2010:


Common stock (par $1; outstanding, 500,000 shares) $ 500,000
Preferred stock, 8% (par $10; outstanding, 21,000 shares) 210,000
Retained earnings 900,000


On December 31, 2010, the board of directors is considering the distribution of a cash dividend to the common and preferred stockholders. No dividends were declared during 2008 or 2009. Three independent cases are assumed:

Case A:

The preferred stock is noncumulative; the total amount of 2010 dividends would be $30,000.
Case B:

The preferred stock is cumulative; the total amount of 2010 dividends would be $30,000. Dividends were not in arrears prior to 2008.
Case C: Same as Case B, except the amount is $75,000.

Requirement 1:
(a)

Compute the amount of dividends, in total, payable to each class of stockholders for each case. (Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)

Case A Case B Case C
Preferred $ $ $
Common

Total $ $ $


(b)

Compute the amount of dividend per share, payable to each class of stockholders for each case. (Round the "per share" amounts to 2 decimal places. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)

Case A Case B Case C
Preferred $ $ $
Common $ $ $

Requirement 2:

On case C, assume that the company issued a 100 percent stock dividend on the outstanding common shares when the market value per share was $50. Complete the following comparative schedule. (Input all amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)

Schedule of Comparative Differences
Amount of Dollar Increase (Decrease)
Item Case C (Cash Dividend) Stock Dividend
Assets $ $
Liabilities $ $
Stockholders' equity $ $

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