Burkert Company has 50,000 shares of $1 par value common stock issued and outstanding.The company also has 2,000 shares of $100 par value,5% cumulative preferred stock outstanding.Burkert did not pay the preferred dividends in 2014 and 2015.What amount of dividends must the company declare in 2016 for the common stockholders to receive a dividend of $1?

Question

Quizplus · Accepted Answer

To calculate the amount of dividends that must be declared for the common stockholders to receive a dividend of $1, we need to use the formula: 
Total amount of dividends = (Number of common shares * Common dividend per share) + (Number of preferred shares * Preferred dividend per share)
We know that the number of common shares is 50,000 and the common dividend per share is $1, so the first part of the equation is 50,000 * 1 = $50,000.
The number of preferred shares is 2,000 and the preferred dividend rate is 5%, which means the preferred dividend per share is $5 ($100 * 5%). The total amount of preferred dividends that were not paid in 2014 and 2015 is $20,000 (2,000 * $5 * 2).
Therefore, the total amount of dividends that must be declared in 2016 to ensure that common stockholders receive a dividend of $1 is:
Total amount of dividends = $50,000 + $20,000 = $70,000
However, since the company did not pay preferred dividends in 2014 and 2015, it must first pay those dividends before declaring any dividends for the common stockholders. This means that the company needs to pay $20,000 (2,000 * $5 * 2) in preferred dividends before it can pay any dividends to the common stockholders. Therefore, the amount of dividends that must be declared in 2016 for the common stockholders to receive a dividend of $1 is $50,000, which is answer choice C.

Burkert Company Has 50,000 Shares of $1 Par Value Common