Lightfoot Inc a software development firm has stock outstand

Lightfoot Inc., a software development firm, has stock outstanding as follows: 30,000 shares of cumulative preferred 4% stock, $25 par, and 38,000 shares of $50 par common. During its first four years of operations, the following amounts were distributed as dividends: first year, $11,400; second year, $18,900; third year, $88,580; fourth year, $128,040. Calculate the dividends per share on each class of stock for each of the four years. Round all answers to two decimal places. If no dividends are paid in a given year, enter \"0\". 1st Year 2nd Year 3rd Year 4th Year

Preferred stock (dividend per share)

Common stock (dividend per share)

Solution

Dividend distribution:

Year

Total Dividend Amount

Preferred

Common

1st

$11,400

$11,400

$0

2nd

$18,900

$18,900

$0

3rd

$88,580

$59,700

$28,880

4th

$128,040

$30,000

$98,040

Computation of Dividends per share:

Year

1st

2nd

3rd

4th

Preferred Stock (Dividend per share)

$0.38

$0.63

$1.99

$1.00

Common Stock (Dividend per share)

$0.00

$0

$0.76

$2.58

Explanation:

First dividend is paid to Preferred stock and then remaining dividend goes to common share holder. For cumulative preferred stock, any deficiency in dividend is carries over to subsequent years and is added to that year\'s dividend.

Preferred Dividends per year = 30,000 x 0.04 x $ 25 = $ 30,000

Preferred Dividends paid in year 1^st = $ 11,400

Dividend per share = Total dividend paid /No. of shares = $ 11,400/30,000 = $ 0.38

Preferred Dividends deficiency in year 1^st = $ 30,000 – $ 11,400 = $ 18,600

Preferred Dividends paid in year 2^nd = $ 18,900

Dividend per share = $ 18,900 /30,000 = $ 0.63

Preferred Dividends deficiency on year 2^nd = $ 30,000 – $ 18,900 = $ 11,100

Preferred Dividends paid in year 3^rd = $ 30,000 + $ 18,600 + $ 11,100 = $ 59,700

Dividend per share = $ 59,700/30,000 = $ 1.99

Preferred Dividends paid in year 4^th = $ 30,000

Dividend per share = $ 30,000/30,000 = $ 1

As the Dividend was insufficient for preferred stocks, common stocks holder was not paid any dividend during fist two years.

Common Dividends paid in year 3^rd = $88,580 - $ 59,700 = $ 28,880

Dividend per share = Total dividend paid /No. of shares = $ 28,880/38,000 = $ 0.76

Common Dividends paid in year 4^th = $ 128,040 - $ 30,000 = $ 98,040

Dividend per share = $ 98,040 /38,000 = $ 2.58

Year	Total Dividend Amount	Preferred	Common
1st	$11,400	$11,400	$0
2nd	$18,900	$18,900	$0
3rd	$88,580	$59,700	$28,880
4th	$128,040	$30,000	$98,040