On January 1, 2016, Bogart Acres Company issued 10,000 shares of 10%, $20 par value cumulative preferred stock.In 2016 and 2017, no dividends were declared on preferred stock.In 2018, Bogart had a profitable year and decided to pay dividends to stockholders of both preferred and common stock.If it has $200,000 available for dividends in 2018, how much could it pay to the common stockholders?

Question

Quizplus · Accepted Answer

First, calculate the total dividends owed on the preferred stock for 2016, 2017, and 2018. The annual dividend per share is 10% of the $20 par value, which equals $2 per share. With 10,000 shares, the annual dividend is $20,000. Over three years (2016, 2017, and 2018), this totals $60,000. Subtracting this from the $200,000 available leaves $140,000 for the common stockholders.

On January 1, 2016, Bogart Acres Company Issued 10,000 Shares