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Adham Corporation was organized on January 1, 2019. During its first year, the corporation issued 40,000 shares of $50 par value preferred stock and 200,000 shares of $5 par value common stock. At December 31, the company declared the following cash dividends: December 2017 $80,000 December 2018 195,000 December 2019 300,000 Required: 1. Show the allocation of dividends to each class of stock, assuming that the preferred stock is 9% and not cumulative. 2. Show the allocation of dividends to each class of stock, assuming that the preferred stock is 10% and cumulative.

Sagot :

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1. The allocation of dividend to each class of stock of Adham Corporation, based on 9% Preferred Stock non-cumulative dividend, is as follows:

                                                 Preferred         Common

                                               Stockholders  Stockholders

Dividend rate                                9%                Residual

December 2017 $80,000         $80,000               $0

December 2018 195,000        $180,000      $15,000 ($195,000 - $180,000)

December 2019 300,000       $180,000   $120,000 ($300,000 - $180,000)

2. The allocation of dividend to each class of stock, based on 10% Preferred Stock cumulative dividend is as follows:

                                                Preferred      Cumulative     Common

                                               Stockholders    Dividend    Stockholders

Dividend rate                                10%            Next year      Residual

December 2017 $80,000         $80,000     $120,000            $0

December 2018 195,000        $195,000        125,000            $0

December 2019 300,000     $300,000         25,000             $0

Data and Calculations:

40,000 shares at $50 par (Preferred Stock)

200,000 shares at $5 par (Common Stock)

Dividend Declared:

December 2017 = $80,000

December 2018 = $195,000

December 2019 = $300,000

Preferred Dividend Rate = 9% non-cumulative

Preferred Dividend Rate = 10% cumulative

Yearly Preferred Dividend:

Based on 9% = $180,000 ($50 x 40,000 x 9%)

Based on 10% = $200,000 ($50 x 40,000 x 10%)

Learn more about cumulative and non-cumulative preferred stock here: https://brainly.com/question/25652712 and https://brainly.com/question/15858679

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