Question

Martinez Company has outstanding 2,400 shares of $100 par, 8% preferred stock and 14,400 shares of $10 par value common. The following schedule shows the amount of dividends paid out over the last 4 years.

Allocate the dividends to each type of stock under assumptions (a) and (b). Express your answers in per-share amounts using the format shown below

Assumptions
				(a) Preferred, noncumulative, and nonparticipating				(b) Preferred, cumulative, and fully participating
Year		Paid-out		Preferred		Common		Preferred		Common
2018		$12,000		$		$		$		$
2019		$28,000		$		$		$		$
2020		$59,100		$		$		$		$
2021		$71,100		$		$		$		$

Answer 1

Assumptions
		a) Preferred, non-cumulative, and non-participating		a) Preferred, cumulative, and Participating
Year	Paid-out	Preferred	Common	Preferred	Common
2018	$12,000	$5	$0	$5	$0
2019	$28,000	$8	$0.61	$11	$0.11
2020	$59,100	$8	$2.77	$15.39	$1.54
2021	$71,100	$8	$3.60	$18.52	$1.85

Working notes:
a)
2018:.
Total dividends paid	$12,000
Preferred dividends (2,400 shares * $100 * 8/100)	$19,200
Common dividends	$0
Preferred dividends per share ($12,000/2,400 shares)	$5.00
Common dividend per share	$0
2019:.
Total dividends paid	$28,000
Less: Preferred dividends (2,400 shares * $100 * 8/100)	($19,200)
Common dividends	$8,800
Preferred dividends per share ($19,200/2,400 shares)	$8
Common dividend per share ($8,800/14,400 shares)	$0.61
2020:.
Total dividends paid	$59,100
Less: Preferred dividends (2,400 shares * $100 * 8/100)	($19,200)
Common dividends	$39,900
Preferred dividends per share ($19,200/2,400 shares)	$8
Common dividend per share ($39,900/14,400 shares)	$2.77
2021:.
Total dividends paid	$71,100
Less: Preferred dividends (2,400 shares * $100 * 8/100)	($19,200)
Common dividends	$51,900
Preferred dividends per share ($19,200/2,400 shares)	$8
Common dividend per share ($51,900/14,400 shares)	$3.60
b)
2018:.
Total dividends paid	$12,000
Preferred dividends (2,400 shares * $100 * 8/100)	$19,200
Common dividends	$0
Preferred dividends per share ($12,000/2,400 shares)	$5.00
Common dividend per share	$0
2019.:
Total dividends paid	$28,000
Less: Preferred dividends (2,400 shares * $100 * 8/100)	($19,200)
	$8,800
Arrears in preferred dividends from 2018 ($19,200 - $12,000)	$7,200
Common dividends ($8,800 - $7,200)	$1,600
Preferred dividends per share ($19,200 + $7,200 = $26,400/2,400 shares)	$11
Common dividend per share ($1,600/14,400 shares)	$0.11
2020:.
Total dividends paid	$59,100
Less: Preferred dividends (2,400 shares * $100 * 8/100)	($19,200)
Less: Common dividends (14,400 shares * $10 * 8/100)	($11,520)
Amount available to participating preferred shareholders	$28,380
Total par value of stock relating to participating ([2,400 * $100] + [14,400 * $10])	$384,000
Rate for calculating the participating ($28,380/$384,000*100)	7.39%
Participating dividends to preferred shareholders (2,400*$100 = $240,000*7.39/100)	$17,736
Participating dividends to common shareholders (14,400*$10 = $144,000*7.39/100)	$10,642
Preferred dividends per share ($19,200 + $17,736 = $36,936/2,400 shares)	$15.39
Common dividend per share ($11,520 + $10,642 = $22,162/14,400 shares)	$1.54
2021.:
Total dividends paid	$71,100
Less: Preferred dividends (2,400 shares * $100 * 8/100)	($19,200)
Less: Common dividends (14,400 shares * $10 * 8/100)	($11,520)
Amount available to participating preferred shareholders	$40,380
Total par value of stock relating to participating ([2,400 * $100] + [14,400 * $10])	$384,000
Rate for calculating the participating ($40,380/$384,000*100)	10.52%
Participating dividends to preferred shareholders (2,400*$100 = $240,000*10.52/100)	$25,248
Participating dividends to common shareholders (14,400*$10 = $144,000*10.52/100)	$15,148
Preferred dividends per share ($19,200 + $25,248 = $44,448/2,400 shares)	$18.52
Common dividend per share ($11,520 + $15,148 = $26,668/14,400 shares)	$1.85