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Curtain Co. paid dividends of $10,000; $12,500; and $14,000 during Year 1, Year 2, and Year 3, respectively. The company had 2,100 shares of 5.5%, $100 par value preferred stock outstanding that paid a cumulative dividend. The amount of dividends received by the common shareholders during Year 3 would be:

User RWAM
by
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2 Answers

3 votes

Answer:

The amount of dividends received by the common shareholders during Year 3 would be:

$1,850

Step-by-step explanation:

Given:

Dividends paid:

Year 1 = $10,000

Year 2 = $12,500

Year 3 = $14,000

We are told the company had 2,100 shares of 5.5%, $100 par value preferred stock outstanding that paid a cumulative dividend.

Therefore, the preferred dividend per year will be =

(2,100 x $100) × 5.5%

= $11,550 per year

The preferred dividend is cummulative, which means that unpaid dividend would be moved over to the next year.

Thus, preferred dividend in arrears would be:

•Year 1 = $11,550 - $10,000

= $1,550

• Year 2 = $11,550+$1,550-$12,500

= $600

Preferred dividend in year 3 = $11,550+$600

= $12,150

Therefore, the amount of dividends received by the common shareholders during Year 3 would be :

$14,000 - $12,150

= $1,850

User Carl Winder
by
6.6k points
7 votes

Answer:

$ 1,850 Common Stockholers

Step-by-step explanation:

Total Dividends to Preferred Stockholders

2,100 Shares

5,5% cumulative preferred stock outstanding

$100 Par Value

Total Preferred Dividends: 2,100 * 5,5% * $100 = $ 11.550

Each year the company has to pay to the preferred shareholders $11,550

Total Dividends to be paid by the company each year

Year 1

$ 10,000 Company Dividends

$ 10,000 Preferred Dividends

$ 1,550 Preferred Dividends to Next Period

Year 2

$ 12,500 Company Dividends

$ 1,550 Preferred Dividends Last Period

$ 10,950 Balance of Company Dividends.

$ 10,950 Preferred Dividends

$ 600 Preferred Dividends to Next Period

Year 3

$ 14,000 Company Dividends

$ 600 Preferred Dividends Last Period

$ 13,400 Balance of Company Dividends.

$ 11,550 Preferred Dividends

$ 1,850 Dividends to Common Shareholders

The Cash that the company shares with each Investor are Cash Dividends, every year that the company get profit, it decides if pay dividends or keep at the company as retained earnings, if the company decides to pay dividends, these are called Cash Dividends, which is the returns to the investors who trusted in the company.

When the company issues shares to the investors to raise funds, these are denominated as Common or Preferred Stocks, the diference between them is that Preferred Stock receives a fixed amount of dividend paid by the company and before the payment to shareholders of common stocks, who must wait until the preferred shareholders receive their part of dividends.

Then, ordinary shareholders are paid with the remaining amount of profit.

User Lumo
by
5.8k points