the records of hoffman company reflected the following balances 246418

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.

Required:

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?

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