Written, Inc. has outstanding 600,000 shares of $2 par common stock and 120,000 shares of no-par 8% preferred stock with a stated value of $5. The preferred stock is cumulative and nonparticipating. Dividends have been paid in every year except the past two years and the current year.Assuming that $300,000 will be distributed as a dividend in the current year, how much will the common stockholders receive?

Question

Quizplus · Accepted Answer

Preferred stockholders are entitled to receive $96,000 (120,000 shares x $0.80 per share x 3 years) in dividends before any dividends can be paid to common stockholders. Since only $300,000 is available for dividends, the preferred stockholders will receive their full $96,000, and the common stockholders will receive $204,000 ($300,000 - $96,000).