0 4 E1315 The board of directors of Petrisin Manufacturing I

0 4 E13.15 The board of directors of Petrisin Manufacturing, Inc., may declare a dividend this year but has not declared a dividend for the past two years. The corporation has 800,000 shares of $1 par value common stock authorized and 200,000 shares issued and outstanding. It also has 40,000 shares of 5 percent, $10 par value cumulative preferred stock authorized, of which 40,000 shares are issued and outstanding. Compute the amount of dividends available for common and preferred shareholders if the dividend declaration is $200,000. 4 E13.16 Calculate the proposed distribution of dividends in E13.15 assuming that the preferred stock is noncumulative.

Solution

Since there is noncumulative preferred stock, there should not be any accumulation of unpaid dividends of past years to be paid in this year.

Dividends to preferred stockholders = Par value × Outstanding preference shares × Rate

                                                          = $10 × 40,000 × 5%

                                                          = $20,000 (Answer)

The rest of the dividend is to be paid to common stockholders.

Dividends to common stockholders = Total dividends – Dividends to preferred stockholders

                                                                  = $200,000 - $20,000

                                                                  = $180,000 (Answer)