Panda Corporation has the following stock outstanding on December 31, 2019:
(a)
Preferred Stock (8 percent cumulative, $10 par, 100,000 shares authorized; 10,000 shares issued and outstanding)
$100,000
(b)
Common Stock ($7 par, 1,000,000 shares authorized, 120,000 shares issued and outstanding)
840,000
Panda did not pay any dividends in 2017. In 2018, they paid total dividends of $10,000, and in 2019, they paid total dividends of $25,000.
What is the amount of dividends that will be paid to common stockholders in 2019?

Question

Panda Corporation has the following stock outstanding on December 31, 2019:
(a)
 Preferred Stock (8 percent cumulative, $10 par, 100,000 shares authorized; 10,000 shares issued and outstanding)
$100,000
(b)
 Common Stock ($7 par, 1,000,000 shares authorized, 120,000 shares issued and outstanding)
840,000
Panda did not pay any dividends in 2017. In 2018, they paid total dividends of $10,000, and in 2019, they paid total dividends of $25,000.
What is the amount of dividends that will be paid to common stockholders in 2019?

Quizplus · Accepted Answer

The preferred stock dividends are calculated first because they are cumulative and have priority over common stock dividends. The annual preferred dividend is 8% of the $100,000 par value, which equals $8,000. Since no dividends were paid in 2017, the 2018 payment of $10,000 covers the 2017 preferred dividends and part of 2018. In 2019, the first $6,000 of the $25,000 total dividends pays the remaining 2018 preferred dividends, leaving $19,000. However, $8,000 of this must go to the 2019 preferred dividends, leaving $11,000 for common stockholders.

Panda Corporation Has the Following Stock Outstanding on December 31