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Ahlia Corporation was organized on January 1, 2009
Ahlia Corporation was organized on January 1, 2009. During its first year, the corporation issued 80,000 shares of $5 par value preferred stock and 400,000 shares of $1 par value common stock. At December 31, the company declared the following cash dividends:
2009 $ 16,000
2010 $60,000
2011 $140,000
Instructions:
Show the allocation of dividends to each class of stock, assuming the preferred stock dividend is 5% and not cumulative.
Show the allocation of dividends to each class of stock, assuming the preferred stock dividend is 6% and cumulative.
Expert Solution
| No. of shares | Par Value | Value of Share | |
| Preferred Stock | 80000 Shares | $ 5 per share | $ 400000 |
| Common Stock | 400000 Shares | $ 1 per share | $ 400000 |
The allocation of dividends to each class of stock, assuming the preferred stock dividend is 5% and not cumulative :-
- Dividends are first paid to Preferred Stockholders and any dividend available after paying preferrred stockholders will be paid to Common Stockholders.
- Total Preferred Stock Dividends are = $ 400000 * 5% = $ 20000
- The preferred stock dividend is non cumulative which means if the company fails to pay dividend in any year to preferred stockholders , then those dividends will not accumulate and will not be paid in following years.
2009
| Total Dividend Declared | $ 16000 |
| Dividend Paid to Preferred Stockholders | $ 16000 |
| Dividend Paid to Common Stockholders | $ 0 |
2010
| Total Dividend Declared | $ 60000 |
| Dividend Paid to Preferred Stockholders | $ 20000 |
| Dividend Paid to Common Stockholders | $ 40000 |
2011
| Total Dividend Declared | $ 140000 |
| Dividend Paid to Preferred Stockholders | $ 20000 |
| Dividend Paid to Common Stockholders | $ 120000 |
The allocation of dividends to each class of stock, assuming the preferred stock dividend is 6% and cumulative :-
- The preferred stock dividend is cumulative which means if the company fails to pay dividend in any year to preferred stockholders , then those dividends will be accumulated and will be paid in following years.
- Total Preferred Stock Dividends are = $ 400000 * 6% = $ 24000
2009
| Total Dividend Declared | $ 16000 |
| Dividend Paid to Preferred Stockholders | $ 16000 |
| Dividend Paid to Common Stockholders | $ 0 |
2010
| Total Dividend Declared | $ 60000 |
| Dividend Paid to Preferred Stockholders ($ 8000 + $ 24000) | $ 32000 |
| Dividend Paid to Common Stockholders | $ 28000 |
- $ 8000 Dividend was unpaid in Year 2009 , Since Preferred Stock is Cumulative , therefore $ 8000 of last year gets accumulate and is paid during 2010 along with current dividends.
2011
| Total Dividend Declared | $ 140000 |
| Dividend Paid to Preferred Stockholders | $ 24000 |
| Dividend Paid to Common Stockholders | $ 116000 |
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