Question

Oceanic Company has 15,000 shares of cumulative preferred 1% stock, $50 par and 50,000 shares of $15 par common stock. The following amounts were distributed as dividends:

Year Amount
20Y1 $18,800
20Y2 3,000
20Y3 22,500

Answer 1

Compute the annual preferred dividend:
- Preferred dividend per share = 1% of $50 = $0.50
- Preferred shares = 15,000 → annual preferred requirement = 15,000 × $0.50 = $7,500

Allocate each year's distribution to preferred first (including any arrears), remainder to common (50,000 shares).

Year 20Y1 — distribution $18,800
- Preferred paid: $7,500 (current)
- Common paid: $18,800 − $7,500 = $11,300
- Per-share: preferred $0.50, common $11,300/50,000 = $0.226

Year 20Y2 — distribution $3,000
- All $3,000 to preferred (partial of current)
- Preferred shortfall (arrears) = $7,500 − $3,000 = $4,500
- Common paid: $0
- Per-share: preferred $3,000/15,000 = $0.20, common $0

Year 20Y3 — distribution $22,500
- Pay arrears from 20Y2: $4,500
- Pay current 20Y3 preferred: $7,500
- Total to preferred: $4,500 + $7,500 = $12,000
- Common paid: $22,500 − $12,000 = $10,500
- Per-share: preferred $12,000/15,000 = $0.80 (includes $0.30 arrears + $0.50 current), common $10,500/50,000 = $0.21

Totals (3 years)
- Total distributed = $44,300
- Total to preferred = $22,500
- Total to common = $21,800