Given: 20,000 shares cumulative preferred stock ($2.25 dividend per share): 40,000 shares common stock. Dividends paid: 2013, $8,000; 2014, 0; and 2015, $160,000.
How much will the preferred stockholders and the common stockholders receive each year?
20000(shares)*$2.25= $45,000* 3years=$135,000
$135,000-$8000 (Paid in 2013 to preferred stock) =$127,000 is the balance for perferred stock.
Last $160,000- $127,000= $33,000 for Common stock.
Well, if the preferred stock has a dividend of $2.25 per share and there are 20,000 shares, the preferred stockholders will receive $45,000 per year (20,000 shares * $2.25 dividend per share).
As for the common stockholders, they will only receive dividends if there is any leftover after paying the preferred stockholders.
In 2013, $8,000 was paid out, so the preferred stockholders would take the entire amount.
In 2014, no dividends were paid, so both the preferred and common stockholders would be left empty-handed.
In 2015, $160,000 was paid out. Since the preferred stockholders already received their $45,000, the remaining $115,000 would go to the common stockholders.
So, to summarize, the preferred stockholders would receive $45,000 each year, while the common stockholders would receive $0 in 2013, $0 in 2014, and $115,000 in 2015.
To determine how much the preferred stockholders and the common stockholders will receive each year, we need to understand the hierarchy of dividend payments.
Preferred stockholders have a higher claim on the company's earnings and are entitled to receive their dividends before common stockholders. The dividend per share for the preferred stock is $2.25.
Here's how to calculate the dividends for each year:
1. Calculate the total dividend payment for the preferred stock:
Preferred dividend payment = Number of preferred shares × Dividend per share
Preferred dividend payment = 20,000 shares × $2.25
Preferred dividend payment = $45,000
2. Distribute the preferred dividend payment:
If the company has enough earnings, all preferred dividends will be paid out. If there are insufficient earnings, the preferred stockholders will receive their full dividend, and common stockholders will receive nothing.
Now, let's see how much each group will receive for each year:
Year 2013:
- Preferred stockholders: $8,000 (entire dividend paid)
- Common stockholders: $0 (no dividend paid)
Year 2014:
- Preferred stockholders: $0 (no dividend paid)
- Common stockholders: $0 (no dividend paid)
Year 2015:
- Preferred stockholders: $45,000 (entire dividend paid, as the earnings cover their dividend)
- Common stockholders: $115,000 ($160,000 - $45,000 paid to preferred stockholders)
In summary, the preferred stockholders will receive $8,000 in 2013 and $45,000 in 2015. The common stockholders will not receive any dividends in 2013 and 2014, but will receive $115,000 in 2015.
2013 PSH: $8,000 & CSH: $0
2014 PSH: $0 & CSH: $0
2015 PSH: I don't know & CSH: I don't know too!
Edwin G.
2013 PSH: $8,000 & CSH: $0
2014 PSH: $0 & CSH: $0
2015 PSH: I don't know & CSH: I don't know too!
Sincerely,
Edwin, B.S.N.