4. Dividends Per Share
Scan Tech Inc., a developer of radiology equipment, has stock outstanding as follows: 24,000 shares of 2%preferred stock of $75 par, and 100,000 shares of $8 par common. During its first four years of operations, the following amounts were distributed as dividends: first year, $19,200; second year, $30,000; third year, $75,000; fourth year, $120,000. Their preferred stock is non-accumulating nor non-cumulative stock.
Calculate the dividends per share on each class of stock for each of the four years. Round all answers to the nearest cent. If no dividends are paid in a given year, enter "0".
1st Year 2nd Year 3rd Year 4th Year
Preferred (per share)
Common (per share)
To calculate the dividends per share on each class of stock for each of the four years, we need to determine how much dividend is paid to each class of stock in each year.
For the preferred stock:
In the first year, $19,200 is distributed as dividends. Since the preferred stock is non-accumulating and non-cumulative, the preferred shareholders will receive a fixed dividend regardless of the earnings of the company. The preferred stockholders are entitled to a 2% dividend on the par value of $75.
Dividends per share for preferred stock in the first year:
= 2% of $75
= 0.02 x $75
= $1.50
In the second year, $30,000 is distributed as dividends. Again, the preferred stockholders will receive a fixed dividend of 2% of the par value of $75.
Dividends per share for preferred stock in the second year:
= 2% of $75
= 0.02 x $75
= $1.50
In the third year, $75,000 is distributed as dividends. The preferred stockholders will still receive the same fixed dividend of 2% of the par value of $75.
Dividends per share for preferred stock in the third year:
= 2% of $75
= 0.02 x $75
= $1.50
In the fourth year, $120,000 is distributed as dividends. As before, the preferred stockholders will receive the fixed dividend of 2% of the par value of $75.
Dividends per share for preferred stock in the fourth year:
= 2% of $75
= 0.02 x $75
= $1.50
Therefore, the dividends per share for the preferred stock in each of the four years are $1.50.
Now, let's calculate the dividends per share for the common stock.
In the first year, $19,200 is distributed as dividends to the common shareholders. The common shareholders receive dividends after the preferred shareholders have received their fixed dividend.
Number of shares of common stock = 100,000
Dividends per share for common stock in the first year:
= $19,200 / 100,000 shares
= $0.192
In the second year, $30,000 is distributed as dividends to the common shareholders.
Dividends per share for common stock in the second year:
= $30,000 / 100,000 shares
= $0.30
In the third year, $75,000 is distributed as dividends to the common shareholders.
Dividends per share for common stock in the third year:
= $75,000 / 100,000 shares
= $0.75
In the fourth year, $120,000 is distributed as dividends to the common shareholders.
Dividends per share for common stock in the fourth year:
= $120,000 / 100,000 shares
= $1.20
Therefore, the dividends per share for the common stock in each of the four years are $0.192, $0.30, $0.75, and $1.20.
To calculate the dividends per share on each class of stock for each of the four years, we need to understand the distribution of dividends for each class of stock.
Let's start with the preferred stock:
1. Preferred Stock:
The preferred stock has a 2% dividend rate and there are 24,000 shares outstanding. However, it's important to note that the preferred stock is non-accumulating nor non-cumulative. This means that if dividends are not paid in a given year, they will not accumulate or carry forward to future years.
Now, let's calculate the dividends per share for each year:
1st Year:
Dividends paid = $19,200
Dividends per share = Dividends paid / Number of shares
Dividends per share = $19,200 / 24,000 shares
2nd Year:
Dividends paid = $30,000
Dividends per share = Dividends paid / Number of shares
Dividends per share = $30,000 / 24,000 shares
3rd Year:
Dividends paid = $75,000
Dividends per share = Dividends paid / Number of shares
Dividends per share = $75,000 / 24,000 shares
4th Year:
Dividends paid = $120,000
Dividends per share = Dividends paid / Number of shares
Dividends per share = $120,000 / 24,000 shares
Now let's move on to the common stock:
2. Common Stock:
There are 100,000 shares of $8 par common stock outstanding. Dividends on common stock are usually paid after dividends on preferred stock.
Let's calculate the dividends per share for each year:
1st Year:
Dividends paid = $19,200
Dividends per share = Dividends paid / Number of shares
Dividends per share = $19,200 / 100,000 shares
2nd Year:
Dividends paid = $30,000
Dividends per share = Dividends paid / Number of shares
Dividends per share = $30,000 / 100,000 shares
3rd Year:
Dividends paid = $75,000
Dividends per share = Dividends paid / Number of shares
Dividends per share = $75,000 / 100,000 shares
4th Year:
Dividends paid = $120,000
Dividends per share = Dividends paid / Number of shares
Dividends per share = $120,000 / 100,000 shares
By calculating the above formulas for each year, you will be able to determine the dividends per share for each class of stock.