Use the following information for questions. Instanbul Corp.has outstanding 20,000 no par value, $0.80, preferred shares and 100,000 no par value common shares.Dividends have been paid every year except last year and the current year.The carrying value of the preferred shares is $200,000 and of the common shares is $300,000.
-Sofia Ltd.reported net income of $5,300,000 for 2014, and earnings per share of $5.00. Included in the net income was $750,000 of bond interest expense related to its long-term debt. The income tax rate for 2014 was 30%.Dividends paid on preferred shares were $1,000,000. The payout ratio on common shares was 25%.What were the dividends paid on common shares in 2014?

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The payout ratio on common shares is 25%, so the dividends paid on common shares is 25% of the net income after preferred dividends. Net income after preferred dividends is $5,300,000 - $1,000,000 = $4,300,000. Therefore, dividends on common shares = 25% of $4,300,000 = $1,075,000.

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