The records of Hoffman Company reflected the following balances in the stockholders’ equity accounts:
Common stock, par $12 per share, 30,000 shares outstanding.
Preferred stock, 10 percent, par $10 per share, 5,000 shares outstanding.
Retained earnings, $216,000.
On September 1, 2009, the board of directors was considering the distribution of a $65,000 cash dividend. No dividends were paid during the previous two years. You have been asked to determine dividend amounts under two independent assumptions (show computations):
a. The preferred stock is noncumulative.
b. The preferred stock is cumulative.
1. Determine the total and per share amounts that would be paid to the common stockholders and to the preferred stockholders under the two independent assumptions.
2. Write a brief memo to explain why the dividends per share of common stock were less for the second assumption.
3. What factor would cause a more favorable per share result to the common stockholders?