VIPSolutionsThe shareholders’ equity of Cedar Corporation includes the items shown below. The board of directors of Cedar Corporation declared cash dividends of $8 million, $20 million, and $150 million in its first three years of operation—2020, 2021, and 2022, respectively. ($ in millions) Common stock: $100 Paid-in capital—excess of par, common: $980 Preferred stock, 8%: $200 Paid-in capital—excess of par, preferred: $555 The amount of dividends to be paid to preferred shareholders in each of the three years, assuming that the preferred stock is cumulative and nonparticipating, is: a. $8, $20, $20, respectively. b. $8, $16, and $16, respectively. c. None of the other answers is correct. d. $16, $16, and $16, respectively.
Question:
The shareholders’ equity of Cedar Corporation includes the items shown below. The board of directors of Cedar Corporation declared cash dividends of $8 million, $20 million, and $150 million in its first three years of operation—2020, 2021, and 2022, respectively. ($ in millions) Common stock: $100 Paid-in capital—excess of par, common: $980 Preferred stock, 8%: $200 Paid-in capital—excess of par, preferred: $555 The amount of dividends to be paid to preferred shareholders in each of the three years, assuming that the preferred stock is cumulative and nonparticipating, is: a. $8, $20, $20, respectively. b. $8, $16, and $16, respectively. c. None of the other answers is correct. d. $16, $16, and $16, respectively.
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Asked by: Test User 100100
Created at: 2025-05-07 23:28:45
Asked by: Test User 100100
Created at: 2025-05-07 23:28:45
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Let's break down the question step by step:
### 1. **Preferred Stock Dividend**
- **Preferred stock, 8%: $200 million**
- **Cumulative and Nonparticipating**
**Annual Preferred Dividend** = 8% × $200 million = **$16 million per year**
### 2. **Dividend Declared Each Year**
- **2020:** $8 million
- **2021:** $20 million
- **2022:** $150 million
### 3. **Dividends to Preferred Shareholders Each Year**
#### **2020:**
Preferred shareholders are entitled to $16 million, but only $8 million is declared.
- **Preferred gets all $8 million** (no dividend to common)
- Unpaid 2020 preferred dividend = $16m - $8m = **$8 million in arrears**
#### **2021:**
Total declared: $20 million
- First, pay **$8 million in arrears (from 2020)**
- Then, pay **$16 million for 2021**
- Total needed for preferred in 2021: $8m (arrears) + $16m (current) = **$24 million**
But only $20 million declared. So,
- All $20 million go to preferred shareholders.
- **Unpaid preferred dividend = $24m - $20m = $4 million in arrears after 2021**
#### **2022:**
Total declared: $150 million
- First, pay **$4 million in arrears**
- Then, pay **$16 million for 2022**
- Total needed for preferred in 2022: $4m (arrears) + $16m (current) = **$20 million**
- The first $20 million go to preferred shareholders.
- The remaining $130 million ($150m - $20m) go to common shareholders.
### 4. **Summary Table**
| Year | Preferred Dividend Paid |
|------|------------------------|
|2020 | $8 million |
|2021 | $20 million |
|2022 | $20 million |
### 5. **Match to Options**
- **a. $8, $20, $20, respectively.** ← This matches our calculation.
- b. $8, $16, and $16, respectively.
- c. None of the other answers is correct.
- d. $16, $16, and $16, respectively.
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## **Final Answer**
**a. $8, $20, $20, respectively.**
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