Fundamentals of Financial Accounting 4th Edition by Fred Phillips,Robert Libby,Patricia Libby

Exercise 14

Comparing Stock and Cash Dividends
Tower Corp. had the following stock outstanding and Retained Earnings at December 31, 2012:

On December 31, 2012, the board of directors is considering the distribution of a cash dividend to the common and preferred stockholders. No dividends were declared during 2010 or 2011. Three independent cases are assumed:
Case A : The preferred stock is noncumulative; the total amount of 2012 dividends would be $12,600.
Case B : The preferred stock is cumulative; the total amount of 2012 dividends would be $14,400. Dividends were not in arrears prior to 2010.
Case C : Same as Case B, except the total dividends are $66,000.
Required:
1. Compute the amount of 2012 dividends, in total and per share, that would be payable to each class of stockholders for each case. Show computations.
TIP : Preferred stockholders with cumulative dividends are to be paid dividends for any prior years (in arrears) and for the current year, before common stockholders are paid.
2. Complete the following schedule, which compares case C to a 100 percent common stock dividend issued when the stock price is $24.