Vangaurd Corporation's December 31 2017 balance sheet showed the following: 8% preferred stock $20 par value cumulative 20000 shares $\begin{array}{lr}
\text {authorized; 15,000 shares issued}& \$ 300,000 \
\text {Common stock, $ \$ 10 $ parvalue, 2,000,000 shares authorized;}&\
\text {$ 1,950,000 $ shares issued, $ 1,920,000 $ shares outstanding}&19,500,000\
\text { Paid-in capital in excess of par-preferred stock } & 60,000 \
\text { Paid-in capital in excess of par-common stock } & 27,000,000 \
\text { Retained earnings } & 7,500,000 \
\text { Treasury stock (30,000 shares) } & 630,000
\end{array}$ Vangaurd declared and paid a $96000 cash dividend on December 15 2017. If the company's dividends in arrears prior to that date were $20000 Vangaurd's common stockholders received

Question

Quizplus · Accepted Answer

The preferred stockholders are entitled to receive their dividend before any dividend is paid to common stockholders. The preferred stock is cumulative, which means that any missed dividends must be paid before common stockholders receive any dividends. In this case, the dividends in arrears were $20,000, so $20,000 of the $96,000 cash dividend went towards paying off the arrears, leaving $76,000 for the current year's dividend. Since there are 20,000 shares of preferred stock, each share is entitled to $4 of the $8 per share dividend. Therefore, the cash dividend received by preferred shareholders was $8 x 20,000 = $160,000. The remaining $76,000 was available for common stockholders, and since there is no information given about any dividends owed to common stockholders, they received the full $76,000. Thus, the total dividend paid to common stockholders was $76,000. Therefore, common stockholders receive $76,000.

Vangaurd Corporation's December 31 2017 Balance Sheet Showed the Following