Question

Sterling Trust has the following classes of​ stock:

Preferred Stock—5%, $15 Par Value; 5,500 shares authorized, 4,000 shares issued and outstanding
Common Stock—$0.20 Par Value; 2,000,000 shares authorized, 1,650,000 shares issued and outstanding
Requirement 1. Sterling declares cash dividends of $25,000 for 2024. How much of the dividends goes to preferred​ stockholders? How much goes to common​ stockholders?

Answer 1

The dividends for preferred stockholders can be calculated by multiplying the preferred dividend rate by the number of preferred shares issued and outstanding. The remaining amount of dividends after paying preferred dividends goes to common stockholders.

Step-by-step explanation:

To determine the amount of dividends that goes to preferred stockholders and common stockholders, we need to consider the number of preferred and common shares issued and outstanding.

Preferred stockholders receive a fixed dividend amount, regardless of the company's profits. In this case, the preferred stock has a 5% dividend rate and a par value of $15.

To calculate the amount of dividends for preferred stockholders, we multiply the dividend rate by the number of preferred shares issued and outstanding:

Dividends for preferred stockholders = Preferred dividend rate * Number of preferred shares issued and outstanding

For common stockholders, the remaining amount of dividends after paying preferred dividends goes to them. We can calculate this by subtracting the amount of dividends for preferred stockholders from the total declared dividends:

Dividends for common stockholders = Total declared dividends - Dividends for preferred stockholders

It's not specified in the question how many common shares are outstanding, so we can't calculate the exact amount. But using the given information, we can calculate the amount of dividends for preferred stockholders:

Dividends for preferred stockholders = 5% * 4,000 shares = $200