Sabas Company has 20,000 shares of $100 par, 2% cumulative preferred stock and 100,000 shares of $50 par common stock. The following amounts were distributed as dividends: Year 1: $10,000 Year 2: 45,000 Year 3: 90,000 Determine the dividends per share for preferred and common stock for the second year.

Second year dividends:

2.25 dividends per preferred share

0 for common stock

$25,000 dividends in arrears

Explanation:

First we determinate the amount of preferred dividends

20,000 shares x $100 each x 2% = $40,000 per year

Then, we check if there are dividends in arrears:

Dividends declared on year 1 $10,000

first we pay preferred stock:

$40,000 - $10,000 = $30,000 in arrears

Second year dividends declared:

45,000 - 40,000 = 5,000 left

but, as there are dividends accumulated this also goes for preferred shares leaving:

30,000 - 5,000 = 25,000 in arrears

45,000 / 20,000 shares = 2.25 dividends per share