A corporation has 5,000 shares of $5 par, 6% cumulative preferred stock outstanding and 25,000 shares of $2 par common stock outstanding. No dividends have been paid for the past 2 years. If the company wishes to distribute $2 per share to the common stockholders this year, what is the total amount of dividends that must be paid?

Question

Quizplus · Accepted Answer

The preferred stockholders must be paid for the current year and the two years of unpaid dividends before common stockholders can receive dividends. The annual dividend for preferred stock is 5,000 shares * $5 * 6% = $1,500. For three years, this totals $4,500. The common stockholders require $2 * 25,000 shares = $50,000. The total dividends required are $4,500 + $50,000 = $54,500.

A Corporation Has 5,000 Shares of $5 Par, 6% Cumulative