Question

In 2012, First Inc. issued 12,000 shares of 8%, $60 par-value preferred stock with a cumulative-dividend feature. In 2012, the firm paid total dividends of $30,000, and in 2013, it paid total dividends of $45,000. If First declares $180,000 in total dividends for 2014, what amount will be available for its common stockholders?

Answer 1

Check the following explanation

Step-by-step explanation:

Preferred Stock has some preference over common stock that is, dividend is paid to preferred stock first before paying any dividend to common stock holders.

In the question

dividend paid by company in 2012 is $30,000

Dividend payable to preferred stock holders in 2012 = 12,000 × 60 × 8% = $57,600

Out of this $57,600 company paid only $30,000, hence balance dividend is accumulated to next year...$27,600

In 2013 company paid dividend = $45,000

In 2013 dividend payable to preferred stock holder (as calculated above) = $57,600

Out of thjs company paid previous $27,600 accumulated and $17,400 this year dividend. Total $45,000 paid.

Now balance unpaid dividend is accumulated = $57,600 - $17,400 = $40,200

In year 2014 company paid total dividend = $180,000

Dividend payable to preferred stock holder in 2014 = $57,600

Total dividend payable to preferred stock holders = current year + accumulated of previous year = $57,600 + $40,200 = $97,800

Total dividend paid = $180,000

Out of this $180,000 dividend --- dividend to preferred stock is paid $97,800 and the balance dividend relates to common stock holders $82,200...