Do It! Review 11-3a Skysong, Inc. has 2,600 shares of 7%, $130 par value preferred stock outstanding at December 31, 2019. At December 31, 2019, the company declared a $132,000 cash dividend. Determine the dividend paid to preferred stockholders and common stockholders under each of the following scenarios.

1. We have:

Dividend paid to preferred stockholders = $23,660

Dividend paid to common stockholders = $108,340

2. We have:

Dividend paid to preferred stockholders = $23,660

Dividend paid to common stockholders = $108,340

3. We have:

Dividend paid to preferred stockholders = $70,980

Dividend paid to common stockholders = $61,020

Explanation:

1. The preferred stock is noncumulative, and the company has not missed any dividends in previous years.

Dividend paid to preferred stockholders = Number of preferred stock outstanding * Preferred stock par value * Preferred stock = 2,600 * $130 * 7% = $23,660

Dividend paid to common stockholders = Dividend declared - Dividend paid to preferred stockholders = $132,000 - $23,660 = $108,340

2. The preferred stock is noncumulative, and the company did not pay a dividend in each of the two previous years.

Since the preferred stock is noncumulative, the answers are the as in part 1 as follows:

Dividend paid to preferred stockholders = Number of preferred stock outstanding * Preferred stock par value * Preferred stock = 2,600 * $130 * 7% = $23,660

Dividend paid to common stockholders = Dividend declared - Dividend paid to preferred stockholders = $132,000 - $23,660 = $108,340

3. The preferred stock is cumulative, and the company did not pay a dividend in each of the two previous years.

Since the preferred stock is cumulative, this means that the accrued fixed dividends for the two previous years have to be paid together with the current year’s dividend making 3 fixed dividends as follows:

Dividend paid to preferred stockholders = (Number of preferred stock outstanding * Preferred stock par value * Preferred stock) * 3 = (2,600 * $130 * 7%) * 3 = $70,980

Dividend paid to common stockholders = Dividend declared - Dividend paid to preferred stockholders = $132,000 - $70,980 = $61,020

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