Water Tower Company had the following shares outstanding and retained earnings at December 31, 2011:

The board of directors is considering the distribution of a cash dividend to the two groups of shareholders. No dividends were declared during 2009 or 2010 . Three independent cases are assumed:
Case A: The preferred shares are non-cumulative; the total amount of dividends is \(\$ 15,000\).
Case B: The preferred shares are cumulative; the total amount of dividends is \(\$ 6,300\).
Case C: Same as Case B, except the amount is \(\$ 33,000\).
\section*{Required:}
1. Compute the amount of dividends, in total and per share, that would be payable to each class of shareholders for each case. Show computations.
2. Assume that the company issued a 10 percent common stock dividend on the outstanding common shares when the market value per share was \(\$ 24\). Complete the following comparative schedule, including explanation of the differences.

Transcribed Image Text:

Preferred shares, 7% (par value $25; outstanding, 1,200 shares) Common shares (outstanding, 30,000 shares) Retained earnings $ 30,000 120,000 140,000