Question

The outstanding share capital of Pronghorn Corporation consists of 3,500 shares of preferred and 6,900 common shares for which $248,400 was received. The preferred shares carry a dividend of $5 per share and have a $100 stated value.

Assuming that the company has retained earnings of $77,500 that is to be entirely paid out in dividends and that preferred dividends were not paid during the 2 years preceding the current year, state how much each class of shares should receive if the preferred shares are non-cumulative and non-participating.

		Preferred		Common		Total
Dividends		$enter a dollar amount		$enter a dollar amount		$enter a dollar amount

  

  

Assuming that the company has retained earnings of $77,500 that is to be entirely paid out in dividends and that preferred dividends were not paid during the 2 years preceding the current year, state how much each class of shares should receive if the preferred shares are cumulative and non-participating.

		Preferred		Common		Total
Dividends		$enter a dollar amount		$enter a dollar amount		$enter a dollar amount

  

  

Assuming that the company has retained earnings of $77,500 that is to be entirely paid out in dividends and that preferred dividends were not paid during the 2 years preceding the current year, state how much each class of shares should receive if the preferred shares are cumulative and participating. (Round answers to 0 decimal places, e.g. 5,275.)

		Preferred		Common		Total
Dividends		$enter a dollar amount rounded to 0 decimal places		$enter a dollar amount rounded to 0 decimal places		$enter a dollar amount rounded to 0 decimal places

  

  

Assume that Pronghorn’s current year net income was $95,400. Calculate the current year payout ratio under each of the conditions below. (Round answers to 2 decimal places, e.g. 52.75.)

				Payout Ratio
(a)		The preferred shares are non-cumulative and non-participating.		enter payout ratio rounded to 2 decimal places
(b)		The preferred shares are cumulative and non-participating.		enter payout ratio rounded to 2 decimal places
(c)		The preferred shares are cumulative and participating.		enter payout ratio rounded to 2 decimal places

Answer 1

Ques 1 Preferred share is non cumulative non participating 77500 m Preferred Common Total 17500 60000 3500*5 52500 25000 3500*5*3 59858 17642 Preferred share is cumulative non participating 77500 UI Preferred share is cumulative and participating 77500 35000 17500 35000 17500 12420 12420 dividends in arrears current dividend Prorata share to common shares 248400*5/100 e balance dividend prorata 3 Total 7358 5222 12580 59858 17642 77500 1 UI remaining dividend Pro rata 12580 7358 5 Preferrence Shares 7 Common shares Book value % 350000 248400 598400 58% 42% 12580 5222 B 12580

Ques 2 1a 2b 0.77 0.58 В с 0.50 4 5 cash dividends to common stockholders(a) 60000 25000 17642 5 95400 95400 7 Net income 8 Preferred divindeds total(b) 95400 17500 52500 59858 35542 77900 42900 1 Payout ratio (a/b) 0.77 0.58 0.50 2