Tower Corp. had the following stock outstanding and Retained Earnings at December 31, 2015: Common Stock (par $8; outstanding, 30,000 shares) $ 240,000
Preferred Stock, 8% (par $10; outstanding, 6,000 shares) 60,000
Retained Earnings 280,000
On December 31, 2015, the board of directors is considering the distribution of a cash dividend to the common and preferred stockholders. No dividends were declared during 2013 or 2014 and none have been declared yet in 2015. Three independent cases are assumed:
Case A: The preferred stock is noncumulative; the total amount of 2015 dividends would be $12,600.
Case B:
The preferred stock is cumulative; the total amount of 2015 dividends would be $14,400. Dividends were not in arrears prior to 2013.
Case C: Same as Case B, except the total dividends are $66,000.
Required:
1-a.
Compute the amount of 2015 dividends, in total that would be payable to each class of stockholders if dividends were declared as described in each case.
1-b.
Compute per case, the 2015 dividends per share, payable to each class of stockholders. (Round your answers to 2 decimal places.)

1-a.

Case A:

Total dividend payable to preferred stockholders = $4,800

Total dividend payable to common stockholders = $7,800.

Case B:

Total dividend payable to preferred stockholders including arrears = $14,400

Total dividend payable to common stockholders = $0.

Case C:

Total dividend payable to preferred stockholders including arrears = $14,400

Total dividend payable to common stockholders = $51,600.

1-b.

Case A:

Preferred stock dividend per share = $0.80 per share

Common stock dividend per share = $0.26 per share

Case B:

Preferred stock dividend per share = $2.40 per share

Common stock dividend per share = $0.00 per share

Case C:

Preferred stock dividend per share = $2.40 per share

Common stock dividend per share = $1.72 per share

Explanation:

1-a. Compute the amount of 2015 dividends, in total that would be payable to each class of stockholders if dividends were declared as described in each case.

This can be answered for each of the cases as follows:

Case A: The preferred stock is noncumulative; the total amount of 2015 dividends would be $12,600.

Noncumulative preferred stock implies that dividends not paid in a particular cannot be carried forward as arrears to subsequent years when dividends are paid.

Therefore, we have:

Total dividend payable to preferred stockholders = $60,000 * 8% = $4,800

Total dividend payable to common stockholders = Total dividend payable - Total dividend payable to preferred stockholders = $12,600 - $4,800 = $7,800.

Case B: The preferred stock is cumulative; the total amount of 2015 dividends would be $14,400. Dividends were not in arrears prior to 2013.

Cumulative preferred stock implies that dividends not paid in a particular will be carried forward as arrears to subsequent years when dividends are paid.

Since dividends were not in arrears prior to 2013 but no dividends were declared during 2013 or 2014, this implies that preferred stockholders will be paid dividends for 3 years, i.e. 2013, 2014 and 2015, in 2015. This can be calculated as follows:

Total dividend payable to preferred stockholders including arrears = $60,000 * 8% * 3 = $14,400

Total dividend payable to common stockholders = Total dividend payable - Total dividend payable to preferred stockholders = $14,400 - $14,400 = $0.

Case C: Same as Case B, except the total dividends are $66,000.

In this case, we have:

Total dividend payable to preferred stockholders including arrears = $60,000 * 8% * 3 = $14,400

Total dividend payable to common stockholders = Total dividend payable - Total dividend payable to preferred stockholders = $66,000 - $14,400 = $51,600.

1-b. Compute per case, the 2015 dividends per share, payable to each class of stockholders. (Round your answers to 2 decimal places.)

These can be calculated as follows:

Case A: The preferred stock is noncumulative; the total amount of 2015 dividends would be $12,600.

Preferred stock dividend per share = Total dividend payable to preferred stockholders / Number preferred shares = $4,800 / 6,000 = $0.80 per share

Common stock dividend per share = Total dividend payable to common stockholders / Number of common shares = $7,800 / 30,000 = $0.26 per share

Case B: The preferred stock is cumulative; the total amount of 2015 dividends would be $14,400. Dividends were not in arrears prior to 2013.

Preferred stock dividend per share = Total dividend payable to preferred stockholders / Number preferred shares = $14,400 / 6,000 = $2.40 per share

Common stock dividend per share = Total dividend payable to common stockholders / Number of common shares = $0 / 30,000 = $0.00 per share

Case C: Same as Case B, except the total dividends are $66,000.

Preferred stock dividend per share = Total dividend payable to preferred stockholders / Number preferred shares = $14,400 / 6,000 = $2.40 per share

Common stock dividend per share = Total dividend payable to common stockholders / Number of common shares = $51,600 / 30,000 = $1.72 per share

88 because 4 plus 4 equals 8. 40 plus 40 equals 80. 80 plus 8 equals 88