Question

PA11-4 Calculating Common and Preferred Cash Dividends [LO 11-2, LO 11-3, LO 11-4]

Ritz Company had the following stock outstanding and Retained Earnings at December 31, 2018:

Common stock (par $1; outstanding, 600,000 shares)	$	600,000
Preferred stock, 10% (par $10; outstanding, 22,000 shares)		220,000
Retained Earnings		910,000

On December 31, 2018, the board of directors is considering the distribution of a cash dividend to the common and preferred stockholders. No dividends were declared during 2016 or 2017. Three independent cases are assumed:

Case A:	The preferred stock is noncumulative; the total amount of 2018 dividends would be $40,000.
Case B:	The preferred stock is cumulative; the total amount of 2018 dividends would be $40,000. Dividends were not in arrears prior to 2016.
Case C:	Same as Case B, except the amount is $85,000.

Required:

1-a. Compute the amount of dividends in total payable to each class of stockholders if dividends were declared as described in each case.

1-b. Compute the amount of dividends per share payable to each class of stockholders if dividends were declared as described in each case.

each case.

	Case A Case B Case C Preferred Common Total

	Case A Case B Case C Preferred Common

Answer 1

Requirement 1a: Compute the amount of dividend under each case as follows

Particulars	Case A	Case B	Case C
Preferred	$22,000	$40,000	$66,000
Common	$18,000	$0	$19,000
Total	$40,000	$40,000	$85,000

Requirement 1b: Compute dividend per share under each case as follows

Particulars	Case A	Case B	Case C
Preferred	$1.00	$1.82	$3.00
Common	$0.03	$0.00	$0.03

Notes:

Case A
Particulars	Preferred	Common	Total
Preferred Dividend ($220,000 × 10%)	$22,000		$22,000
Common Dividend ($40,000 − $22,000)		$18,000	$18,000
Total	$22,000	$18,000	$40,000
÷ Number of Shares	22,000	600,000
Dividend per share	$1.00	$0.03
Case B
Particulars	Preferred	Common	Total
Preferred dividend in Arrears ($220,000 × 10% × 2)	$40,000		$40,000
Common Dividend		$0	$0
Total dividend	$40,000	$0	$40,000
÷ Number of Shares	22,000	600,000
Dividend per share	$1.82	$0.00
Case C
Particulars	Preferred	Common	Total
Preferred dividend - Arrears ($220,000 × 10% × 2)	$44,000		$44,000
Preferred dividend - Current ($220,000 × 10%)	$22,000	$0	$22,000
Common Dividend ($85,000 − $44.000 − $22,000)		$19,000	$19,000
Total dividend	$66,000	$19,000	$85,000
÷ Number of Shares	22,000	600,000
Dividend per share	$3.00	$0.03