Effect of preferred stock characteristics on dividends
Response to the following problem:
The shareholders' equity of Kramer Industries includes the data shown below. During 2017, cash dividends of $150 million were declared. Dividends were not declared in 2015 or 2016.
($ in millions)
Common stock $200
Paid-in capital-excess of par, common 800
Preferred stock, 10%, nonparticipating 100
Paid-in capital-excess of par, preferred 270
Required:
Determine the amount of dividends payable to preferred shareholders and to common shareholders under each of the following two assumptions regarding the characteristics of the preferred stock.
Assumption A -The preferred stock is noncumulative.
Assumption B -The preferred stock is cumulative.