A corporation has 10,000 shares of 8 percent cumulative preferred stock and 20,000 shares of common stock outstanding. Par value for each is $100. No dividends were paid last year, but this year a $200,000 dividend is paid. How much of this $200,000 goes to the holders of common stock?

Question

Quizplus · Accepted Answer

The cumulative preferred stock requires dividends from last year to be paid first. Last year's dividend is $80,000 (10,000 shares * $100 * 8%), and this year's is also $80,000. Thus, $160,000 goes to preferred stockholders, leaving $40,000 for common stockholders.

A Corporation Has 10,000 Shares of 8 Percent Cumulative Preferred