Question

Sandhill Corporation was organized on January 1, 2019. During its first year, the corporation issued 1,900 shares of $50 par value preferred stock and 109,000 shares of $10 par value common stock. At December 31, the company declared the following cash dividends: 2019, $5,950; 2020, $13,800; and 2021, $28,000. (a) Show the allocation of dividends to each class of stock, assuming the preferred stock dividend is 7% and noncumulative.

Answer 1

Answer:

Sandhill Corporation

Allocation of dividends to each class of stock:

Year  Total Dividends     Preferred Stock    Common Stock

2019       $5,950                    $5,950                    $0

2020     $13,800                    $6,650                    $7,150

2021     $28,000                    $6,650                 $21,350

Explanation:

a) Data and Calculations:

7% Preferred stock, $50 par value: Issued 1,900 = $95,000

Common stock, $10 par value: Issued 109,000 = $1,090,000

Dividends declared at December 31:

Year     Dividends    7% Preferred                 Common Stock

2019 = $5,950          $6,650  Paid $5,950         $0

2020 = $13,800        $6,650  Paid $6,650         $7,150

2021 = $28,000        $6,650  Paid $6,550      $21,350

b) The preferred stock dividend is fixed at 7% of $95,000 yearly.  Since it is noncumulative, the 2019 dividend will be limited to the dividends declared.  For other years, the dividend for the preferred stock is fixed at $6,650 annually.  Whatever remains after paying the preferred dividends is paid to the common stockholders.