Accounting Question?

Question

I am going back to school to get my accounting degree. My teacher doesn't teach from the book, but assigns homework from our text book. He showed us one problem and gave us the answer for practice. Company A 75,000 shares at $5 par value, and 8% cumulative perferred stock and $200,000 share of $1 par value common stock. Last year, the company had no dividends, but this year the company has $108,000. What does each class of stock receive?
My teacher said that the Preferred stockholders get $30,000 for last year and this year. The common stockholders get $48,000.

A different problem says that company A consists of 40,000 shares of noncumulative 7.5% preferred stock with $10 par calue and 100,000 shares of common stock with $1 par value. What does each class get for the following years?
2003 - $10,000
2004 - $24,000
2005 - $100,000
2006 - $196,000
The books says that the answer is $94,000 paid to preferred stock. Can anyone tell me why the two are calculated differently?

Answer 1

The reason it's calculated differently because in the first problem, you're dealing with cumulative preferred stock, meaning that they're entitled to receive the full amount of their dividend. In the second example, the preferred shareholders are noncumulative, meaning they get what's available and don't accrue future benefits. So,

40,000 sh x $10 par x .075 = 30,000 preferred dividends

2003: $30000 due, $10,000 available pymt $10,000
2004 $30,000 due, $24,000 available pymt $24,000
2005 $30,000 due $30,000 available pymt $30,000
2006 $30,000 due $196,000 availabe pymt $30,000

Total preferred dividends $94,000

In years 2005 and 2006, the common stockholders would be able to receive dividends if the board so chose, too.

Answer 2

They are calculated differently because of the wording. In the first case, the preferred stock is cumulative. This means that if in one year, dividends are not paid or the level is not paid to meet the entire obligation, they will receive this amount more in dividends the next time dividends are paid.
In the second, the preferred stock is non-cumulative, meaning that if dividends are not paid in a certain year, the preferred stock holders just lose out on the dividends. They do not carryover to the following year.

Hope this helps.