Question

Wininger Corporation has 1000 shares of 6%, $50 par value, cumulative preferred stock and 25,000 shares of $1 par value common stock outstanding on December 31, 2019 and December 31, 2020. The board of directors declared and paid a $2,000 dividend in 2019. In 2020, $15,000 of dividends are declared and paid. What are the dividends received by the common stockholders in 2020 (there were no dividends in arrears prior to 2019)

Answer 1

Dividends received by the common stockholders in 2020 = $12,000

Step-by-step explanation:

Cumulative preferred stock can be described as a type of preferred stock whose dividends accumulate when they are not paid in any year and their accumulated dividends has to be paid in future before common stockholders receive any dividend.

The dividends received by the common stockholders of Wininger Corporation in 2020 can therefore be calculated as follows:

Annual dividend payable to cumulative preferred stock = 1000 * 5% * $50 = $2,500

Dividend declared paid in 2019 = $2,000

Dividend declared and paid in 2020 = $15,000

Outstanding dividend payable to cumulative preferred stock in 2019 = Annual dividend payable to cumulative preferred stock - Dividend declared in 2019 = $2,500 - 2,000 = $500

Dividend paid to cumulative preferred stock in 2020 = Outstanding dividend payable to cumulative preferred stock in 2019 + Annual dividend payable to cumulative preferred stock = $500 + $2,500 = $3,000

Dividends received by the common stockholders in 2020 = Dividend declared and paid in 2020 - Dividend paid to cumulative preferred stock in 2020 = $15,000 - $3,000 = $12,000