Archer, Inc., has 10,000 shares of 5%, $100 par value, noncumulative preferred stock and 40,000 shares of $1 par value common stock outstanding at December 31, 2010. There were no dividends declared in 2009. The board of directors declares and pays a $120,000 dividend in 2010. What is the amount of dividends received by the common stockholders in 2010?

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Quizplus · Accepted Answer

The preferred stockholders are entitled to receive their 5% dividend before any dividends can be paid to the common stockholders. The preferred stock has a $100 par value, so the total dividend due to the preferred stockholders is $100 x 10,000 shares x 5% = $50,000. The remaining $70,000 ($120,000 - $50,000) is available to be paid to the common stockholders. Therefore, the amount of dividends received by the common stockholders in 2010 is $70,000.