Question

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.

Required:
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?



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  • CreatedJuly 01, 2014
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