Question

"M. Coronado Corporation has 17,000 shares of 9%, $100 par value, cumulative preferred stock outstanding at December 31, 2020. No dividends were declared in 2018 or 2019. If M. Coronado wants to pay $490,000 of dividends in 2020, what amount of dividends will common stockholders receive?

Amount of dividend $ _____________"

Answer 1

There are no dividends available for common stockholders in 2020.

Step-by-step explanation:

To determine the amount of dividends that common stockholders will receive, we need to calculate the dividends available for common stockholders. First, we need to subtract the dividends to be paid to the preferred stockholders from the total amount of dividends to be paid in 2020. The cumulative preferred stock has 9% dividend rate and $100 par value. Since no dividends were declared in 2018 and 2019, the cumulative dividends for preferred stock from those years would be $0. Therefore, we multiply the number of preferred shares by the dividend rate to calculate the preferred dividends for 2020. In this case, the preferred dividends for 2020 would be $1,530,000 (17,000 shares * 9% * $100). To find the amount of dividends available for common stockholders, we subtract the preferred dividends from the total amount of dividends to be paid, which is $490,000 - $1,530,000 = -$1,040,000. Since the result is negative, it means that there are no dividends available for common stockholders in 2020.