Question

Anders, Inc., has 10,000 shares of 5%, $100 par value, cumulative preferred stock and 40,000 shares of $1 par value common stock outstanding at December 31, 2013. There were no dividends declared in 2011.

The board of directors declares and pays a $90,000 dividend in 2012 and in 2013.

What is the amount of dividends received by the common stockholders in 2013?
a. $30,000
b. $50,000
c. $90,000
d. $0

Answer 1

a. $30,000

Step-by-step explanation:

First we calculate the share of preferred dividend, common shareholders will receive the residual after preferred stock holders have been paid.

Preferred dividend payable = (10,000*100)*0.05 = $50,000

In 2011 no dividend was paid so 50,000 was carried forward to 2012

In 2012 90,000 was paid

Of this $90,000, preferred dividend of 50,000 was paid for 2011 leaving the dividend amount as $40,000.

For 2012, 50,000 was again payable for preferred but only 40,000 of this was paid thus carrying forward $10,000 payable to preferred stock holders.

In 2013, Again 90,000 was declared. Of this 10,000 was paid to preferred for 2012 leaving the dividend amount to 80,000. For 2013 again 50,000 for preferred was payable and after paying this the net amount available for Common stock holders was

=80,000-50,000 = $30,000

Hope that helps.