Question

Assume the following shares outstanding: Preferred stock, 5%, $100 par value, noncumulative, 1,000 shares. No dividends were declared or paid in 2010 or 2011. Common stock, $1 par value, 2,000 shares. Total dividends declared in 2012 were $50,000. The total amount of dividends to which common stockholders are entitled is

Answer 1

The total amount of dividends to which common stockholders are entitled is $100,000.

Step-by-step explanation:

The total amount of dividends to which common stockholders are entitled can be calculated by multiplying the dividend rate by the number of common shares outstanding. In this case, there were no dividends declared or paid in 2010 or 2011, so the calculation only includes the dividends declared in 2012. The preferred stock does not receive any dividends, so we only consider the common stock.

Dividend amount = Dividend rate × Number of common shares

Dividend amount = $50,000 × 2,000

Dividend amount = $100,000

Therefore, the total amount of dividends to which common stockholders are entitled is $100,000.

Answer 2

$45,000

Step-by-step explanation:

The computation of the total amount of dividend paid to the common stockholder is given below:

But before that the dividend that to be paid to preference stockholder is

= Face value × Number of shares outstanding × Dividend rate

= $100 × 1,000 shares × 5%

= $5,000

The total dividend declared is $50,000

So, the balance is to be paid to common stockholder i.e.

= $50,000 - $5,000

= $45,000