Question 3: (4 marks: each case 2 marks)

Sigma Corporation was organized on January 1, 2010. During its first year, the corporation issued 50,000 shares of $15 par value preferred stock and 150,000 shares of $5 par value common stock. At December 31, the company declared the following cash dividends:

2010 $ 70,000

2011 $ 90,000

2012 $ 100,000

Instructions

(a) Show the allocation of dividends to each class of stock, assuming the preferred stock dividend is 10% and not cumulative. (1 mark)

(b) Show the allocation of dividends to each class of stock, assuming the preferred stock dividend is 12% and cumulative. (1 mark)

(c ) Why corporations issue stock dividend rather than cash dividend. (2 marks)