Cash Dividends Kerry Company has 800 shares of 100 par value

Cash Dividends Kerry Company has 800 shares of $100 par value, 11% preferred stock and 8,000 shares of $10 par value common stock outstanding. The preferred stock is cumulative and nonparticipating. Dividends were paid in 2012. Since 2012, Kerry has declared and paid dividends as follows: 2013 2014 2015 2016 $ 0 10,100 20,200 25,400 Required 1. Determine the amount of the dividends to be allocated to preferred and common stockholders for each year 2014 to 2016. If an amount is zero, enter \"O\". Year Preferred Dividends Common Dividends 2014 2015 2016 2. If the preferred stock had been noncumulative, how much would have been allocated to the preferred and commorn stockholders each year? Year Preferred Dividends Common Dividends 2014 2015 2016

Solution

In case of cumulative preferred stock, if any dividend payments have been missed in the past, the dividends owed, current year as well as arrear, must be paid out to cumulative preferred shareholders first.

When a company runs into financial problems and cannot meet all of its obligations, it may suspend its dividend payments and focus on paying business-specific expenses and debt payments. When the company gets through the trouble and starts paying out dividends again, non-cumulative preferred stock shareholders possess no rights to receive any missed dividends. However, holders of cumulative preferred stock shares must receive all dividend payments in arrears Common stockholders must wait until all cumulative preferred dividends are paid.

Year

Details

Preferred Dividends

Details

Common Dividends

2014

$8800 for 2013 arrear

($10100-$8800) = $1300 for 2014

$10100

Nil

$0

2015

$8800-$1300 = $7500 for 2014 arrear

$8800 for 2015

$16300

$20200-$16300

$3900

2016

$8800 for 2016

$8800

$25400- $8800 = $16600

$16600

Annual Cumulative preferred stock dividend = 11% *800 shares * $100/share = $8800.

Year

Details

Preferred Dividends

Details

Common Dividends

2014

No Arrear

$8800 for 2014

$8800

$10100-$8800 = $1300

$1300

2015

$8800 for 2015

$8800

$20200- $8800 = $11400

$11400

2016

$8800 for 2016

$8800

$25400-$8800 = $16600

$16600

Year	Details	Preferred Dividends	Details	Common Dividends
2014	$8800 for 2013 arrear ($10100-$8800) = $1300 for 2014	$10100	Nil	$0
2015	$8800-$1300 = $7500 for 2014 arrear $8800 for 2015	$16300	$20200-$16300	$3900
2016	$8800 for 2016	$8800	$25400- $8800 = $16600	$16600