Dabney Inc. has 5000 shares of 5% $100 par value noncumulative preferred stock and 40000 shares of $1 par value common stock outstanding at December 31 2017. There were no dividends declared in 2016. The board of directors declares and pays a $60000 dividend in 2017. What is the amount of dividends received by the common stockholders in 2017?

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Quizplus · Accepted Answer

The preferred stockholders receive their 5% dividend first, which is 5% of $100 par value times 5000 shares = $25,000. Since the preferred stock is noncumulative, they do not receive any dividends for 2016. The remaining dividend amount for 2017 is $60,000 - $25,000 = $35,000, which goes to the common stockholders.