Access Garde, Inc., has 200,000 shares of $1.80 preferred stock outstanding in addition to its common stock. The $1.80 designation means that the preferred stockholders receive an annual cash dividend of $1.80 per share. In 2010, Access Garde declares an annual dividend of $500,000. The allocation to preferred and common stockholders is:
Preferred dividend, (200,000 shares x $1.80 per share)............ $360,000
Common dividend (remainder: $500,000 – $360,000) ............. 140,000
Total dividend........................................................................... $500,000
Answer these questions about Access Gardes cash dividends.
1. How much in dividends must Access Garde declare each year before the common stockholders receive any cash dividends for the year?
2. Suppose Access Garde, Inc., declares cash dividends of $400,000 for 2010. How much of the dividends goes to preferred? How much goes to common?
3. Is Access Gardes preferred stock cumulative or noncumulative? How can you tell?
4. Access Garde, Inc., passed the preferred dividend in 2009 and 2010. Then in 2011, Access Garde declares cash dividends of $1,500,000. How much of the dividends goes to preferred? How much goes to common?