Preferred Stock Essay

Fairmount Inc., a developer of radiology equipment, has stock outstanding as follows: 25,000 shares of cumulative 2%, preferred stock of $130 par, and 83,000 shares of $10 par common. During its first four years of operations, the following amounts were distributed as dividends: first year, $43,500; second year, $60,500; third year, $134,160; fourth year, $185,350.

Calculate the dividends per share on each class of stock (preferred and common) for each of the four years. Round all answers to nearest whole cent. If no dividends are paid in a given year, enter "0".
Preferred dividends are paid before common dividends. With cumulative preferred dividends, if there are any dividends in arrears, they must be made up before common stockholders receive dividends.

25,000 x 2% x 130 = $65,000 dividends owe to preferred shareholders each year.

1st year
43,500 paid
Preferred:
43,500 / 25,000 = $1.74 per share. 65,000 - 43,500 = 21,500 dividends in arrears.
Common:
0 Dividends paid

2nd year
60,500 paid
Preferred:
60,500 / 25,000 = $2.42 per share. 65,000 - 60,500 + 21,500 = 26,000 dividends in arrears.
Common:
0 Dividends paid

3rd year
134,160
Preferred:
65,000 + 26,000 = $91,000 paid
91,000 / 25,000 = $3.64 per share
Common:
134,160 - 91,000 = 43,160 paid
43,160 / 83,000 = $0.52 per share

4th year
185,350 paid
Preferred:
65,000 / 25,000 = $2.60 per share
Common:
185,350 - 65,000 = 120,350 paid
120,350 / 83,000 = $1.45 per