A company has 20,000 shares of preferred shares outstanding paying 0.30 cents dividend per share.It also has 110,000 shares of common stock outstanding.If the company decides to pay a total of $35,000 in dividends.The preferred stock is cumulative with two years' dividends in arrears.What is the amount of dividend common stockholders will receive?

Question

Quizplus · Accepted Answer

The preferred stockholders are entitled to receive their dividends before the common stockholders. The preferred stock is cumulative, which means that if the company does not pay the preferred dividends in one year, the preferred stockholders are entitled to receive those dividends in a later year. In this case, the preferred stockholders are entitled to receive two years' worth of dividends, or $12,000. The company has $35,000 available to pay dividends, so the common stockholders will receive $23,000.

A Company Has 20,000 Shares of Preferred Shares Outstanding Paying