A corporation has 10,000 shares of 5 percent, $50 par-value cumulative preferred stock and 50,000 shares of $4 par-value common stock outstanding. Last year, no dividends were paid. This year, the board of directors declared a dividend of $75,000. The common stockholders will receive a dividend this year of:

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First, the preferred stockholders must be paid their cumulative dividends for this year and any arrears from the previous year. The annual dividend on preferred stock is 5% of the $50 par value, which equals $2.50 per share. With 10,000 shares, this totals $25,000 for one year. Since dividends were not paid last year, another $25,000 is owed for the previous year, totaling $50,000 for both years. After paying $50,000 to preferred stockholders, $25,000 remains for the common stockholders. With 50,000 shares of common stock, this results in a dividend of $0.50 per share.

A Corporation Has 10,000 Shares of 5 Percent, $50 Par-Value