The records of Hollywood Company reflected the following balances in the stockholders’ equity accounts at December 31, 2013:
Common stock, par $12 per share, 50,000 shares outstanding
Preferred stock, 10 percent, par $10 per share, 5,000 shares outstanding
Retained earnings, $216,000
On September 1, 2014, the board of directors was considering the distribution of an $85,000 cash dividend. No dividends were paid during the previous two years. You have been asked to determine dividend amounts under two independent assumptions (show computations):
a. The preferred stock is noncumulative.
b. The preferred stock is cumulative.

1. Determine the total and per share amounts that would be paid to the common stockholders and to the preferred stockholders under the two independent assumptions.
2. Write a brief memo to explain why the dividends per share of common stock were less for the second assumption.
3. What factor would cause a more favorable per share result for the common stockholders?

  • CreatedJuly 01, 2014
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