Question

Buffet Company was organized in January 2014 and has 1,000 shares of $200 par value, 10 percent, cumulative preferred stock outstanding and 3,000 shares of $1 par value common stock outstanding. Dividends declared and paid each year are $10,000 in 2014, $15,000 in 2015, and $75,000 in 2016. During 2016, the dividends that must be paid to the preferred and common stockholders, respectively, total _____.$35,000 and $40,000Other Types of and Reasons for Issuing Preferred Stock 01Nonparticipating preferred stockhas a feature that limits dividends to a maximum amount each year. After preferred stockholders receive this maximum amount, the common stockholders receiveany and all additional dividends.Participating preferred stockhas a feature allowing preferred stockholders to share with common stockholders in any dividends paid in excess of the percent or dollar amount stated on the preferred stock. This participation feature does not apply until common stockholders receive dividends equal to the preferred stock's dividend percent. Corporations rarely issue participating preferred stock.Convertible preferred stockgives holders the option to exchange their preferred shares for common shares at a specified rate.Callable preferred stockgives the issuing corporation the right to purchase (retire) this stock from its holders at specified future prices and dates. The amount paid to call and retire a preferred shareis its call price and is set when the stock is issued. The call price normally includes the stock's par value plus a premium giving holders additional return on their investment. When the issuing corporation calls and retires a preferred stock, the terms of the agreement often require it to pay the call price and any dividends in arrears.Other Types of and Reasons for Issuing Preferred Stock 02Corporations issue preferred stock for several reasons. One is to raise capital without sacrificing control. For example, suppose a company's organizers have $100,000 cash to invest and organize a corporation that needs $200,000 of capital to start. If they sell $200,000 worth of common stock (with $100,000 to the organizers), they would have only 50 percent control and need to negotiate extensively with other stockholders in making policy. However, if they issue $100,000 worth of common stock to themselves and sell outsiders $100,000 of 8 percent, cumulative preferred stock with no voting rights, they retain control.A second reason to issue preferred stock is to boost the return earned by common stockholders. Let's suppose the corporation's organizers expect to earn an annual after-tax income of $24,000. If

Answer 1

$20,000 and 55,000

Step-by-step explanation:

$20,000(preferred stock holders) and 55,000 (common stockholders).

working:

annual payment to preferred stock holders = 1,000 shares * $200 * 10% =>$20,000.

(note these are non cumulative , deficient dividends paid in previous years will not carry forward to current year, like in case of cumulative preferred stock).

remaining amount is the dividends to common stock holders in 2016:

=>$75,000 total dividends paid -$20,000 paid to preferred stock holders.

=>$55,000.