Art, Inc.has 5,000 shares of 4%, $100 par value, cumulative preferred stock and 20,000 shares of $1 par value common stock outstanding at December 31, 2021.There were no dividends declared in 2019.The board of directors declares and pays a $45,000 dividend in 2020 and in 2021.What is the amount of dividends received by the common stockholders in 2021?

Question

Quizplus · Accepted Answer

The preferred stock dividends must be paid first, including any arrears. The annual dividend on preferred stock is 4% of $100 par value, which is $4 per share. With 5,000 shares, this totals $20,000 per year. No dividends were declared in 2019, so the 2020 dividend would cover the 2019 arrears and the 2020 dividend for preferred stockholders, totaling $40,000, leaving $5,000 for common stockholders in 2020. In 2021, there are no arrears, so after paying $20,000 to preferred stockholders, $25,000 is left for common stockholders.

Art, IncHas 5,000 Shares of 4%, $100 Par Value, Cumulative Preferred