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?