The Mailer Corporation had the following classes of stock outstanding as of December 31,2014: Common stock,$20 par value,20,000 shares outstanding
Preferred stock,6 percent,$100 par value,cumulative,2,000 shares outstanding
No dividends were paid on preferred stock for 2012 and 2013.On December 31,2014,a total cash dividend of $200,000 was declared.What are the amounts of dividends payable on both the common and preferred stock,respectively?

Question

Quizplus · Accepted Answer

The total cash dividend to be paid is $200,000. The preferred stock is cumulative, meaning that any unpaid dividends from prior years must be paid before any dividends can be paid on the common stock. Therefore, the dividend payable on the preferred stock is calculated as follows:

Preferred dividend = ($100 par value x 6% dividend rate x 2,000 shares) = $12,000
Accumulated unpaid dividends from prior years = ($100 par value x 6% dividend rate x 2,000 shares x 2 years) = $24,000
Total dividend payable on preferred stock = $12,000 + $24,000 = $36,000

The remaining $164,000 is available to be paid as dividends on the common stock:

Dividend per common share = $164,000 / 20,000 shares = $8.20 per share

Therefore, the dividend payable on the common stock is:

Common dividend = $8.20 per share x 20,000 shares = $164,000

Therefore, the best choice is B) $164,000 and $36,000.

The Mailer Corporation Had the Following Classes of Stock Outstanding