The Stansbury Company has issued 10%, partially participating, cumulative preferred stock with a total par value of $200,000 and common stock with a total par value of $800,000. The preferred stock participates up to 15% of its par value. No dividends are in arrears. How much cash will be paid to the preferred stockholders and the common stockholders, respectively, if cash dividends of $160,000 are distributed?

Question

Quizplus · Accepted Answer

The preferred stock participates up to 15% of its par value, which is $30,000 ($200,000 x 15%). Therefore, the preferred stockholders will receive $30,000 plus their 10% dividend on the remaining $170,000, which equals $47,000. The total payout to preferred stockholders is $77,000 ($30,000 + $47,000).
The remaining $83,000 ($160,000 - $77,000) will be distributed to the common stockholders.

The Stansbury Company Has Issued 10%, Partially Participating, Cumulative Preferred