Question

please explain i do not understand this at all. thank you

Playing Over Par Co. (POP) had the following stock account balances continuously for each of the first four years of the company's operations: • 6% Preferred Stock ($100 par value; 20,000 shares authorized; 8,000 shares issued and outstanding; cumulative and participating) Common Stock ($5 par value; 200,000 shares authorized; 85,000 shares issued; 76,000 shares outstanding) The participation arrangement associated with the preferred stock mandates that preferred stockholders receive half of any excess dividends available after common stockholders have received $1 per share. The company declared the following amounts in total cash dividends in each of those four years: 0 Year 1 $ o Year 2 $ 84,000 • Year 3 $115,000 o Year 4 $160,000 Determine how much of the POP dividends would be paid to each group of stockholders in each year.

Answer 1

Please follow the sequence for payment of dividends First - Payment of current preferred dividend. Second - Payment of arrears in preferred dividend, if any Third - Payment of equity dividend Fourth - Payment of half of balance dividend as preferred dividend, if any Fifth - Payment of balance dividend as equity dividend, if any Year 1 Total Dividend declared So, no payment is made for any stockholders in Year 1 0 $ 48,000 Arrears in preferred dividend balance at end of Year 1 (8000*100*6%) Year 2 Total Dividend declared $ 84,000 $ (48,000) First - Payment of current preferred dividend (8000*100*6%) Balance dividend Second - Payment of arrears in preferred dividend, if any Balance dividend $ $ $ 36,000 (36,000) So, entire dividend of $ 84,000 in Year 2 is paid to preferred stockholders. $ 12,000 Arrears in preferred dividend balance at end of Year 2 (48000-36000)

Year 3 Total Dividend declared First - Payment of current preferred dividend Balance dividend Second - Payment of arrears in preferred dividend, if any Balance dividend Third - Payment of equity dividend (Max. 76000*1 = $76,000) Balance dividend $ 115,000 $ (48,000) $ 67,000 $ (12,000) $ 55,000 $ (55,000) $ In Year 3, $60,000 is paid to preferred stockholders and $55,000 is paid to equity stockholders'. $ Arrears in preferred dividend balance at end of Year 3 (12000-12000) Year 4 Total Dividend declared First - Payment of current preferred dividend Balance dividend Second - Payment of arrears in preferred dividend, if any Balance dividend Third - Payment of equity dividend (Max. 76000*1 = $76,000) Balance dividend Fourth - Payment of half of balance dividend as preferred dividend, if any (36000/2) Fifth - Payment of balance dividend as equity dividend, if any $ 160,000 $ (48,000) $ 112,000 $ $ 112,000 $ (76,000) $ 36,000 $ (18,000) $ 18,000 In Year 4, $66,000 is paid to preferred stockholders and $94,000 is paid to equity stockholders'. Arrears in preferred dividend balance at end of Year 4 $ $