Question

12. Motor Works, Inc. has declared a $20,000 cash dividend to shareholders. The company has 5,000 shares of $15-par, 10% preferred stock and 10,000 shares of $20-par common stock. The preferred stock is cumulative. How much will be distributed to the preferred and common stockholders on the date of payment if the preferred stock is $8,000 in arrears

Answer 1

The $15,500 and $4,500 is distributed to the preferred and common stockholders on the date of payment.

Step-by-step explanation:

For computing how much is the dividend is distributed to the preferred and common stockholder, first we have to compute them individually.

Since in the question, it is given that total cash dividend is = $20,000

and, the company has 10% preferred stock of 5,000 shares of $15 par, plus the preferred stock has an arrears of $8,000

So, the balance of preferred stock = number of share × price × rate + arrears

= 5,000 × $15 ×10% + $8,000

= $7,500 + $8,000

= $15,500

Thus, the balance of preferred stock is $155,00

And the total cash dividend is $20,000

So, for common stockholders it is equals to=

= Total cash dividend - preference stock dividend

= $20,000 - $15,500

= $4,500

Thus, the common stockholder balance is $4,500

So, the $15,500 and $4,500 is distributed to the preferred and common stockholders on the date of payment.