Lowe Corporation had authorization for 80,000 shares of 8%
Question and Solution
Lowe Corporation had authorization for 80,000 shares of 8% preferred stock, par value $20 per share, and 24,000 shares of common stock, par value $120 per share, all of which are issued and outstanding. During the years beginning in 2011, Lowe maintained a policy of paying out 50% of net income in cash dividends. One-half the net income for the three years beginning in 2011 was $50,000, $280,000, and $340,000. There are no dividends in arrears for years prior to 2011. Required: Compute the amount of dividends paid to each class of stock for each year under the following separate cases: 1. Preferred stock is noncumulative. 2. Preferred stock is cumulative. 3. Interpretive Question: Why is it important that a common stockholder know about the dividend privileges of the preferred stock?