Question

Coronado Inc., has 2800 shares of 5%,$50 par value, cumulative preferred stock and 100000 shares of $1 par value common stock outstanding at December 31, 2019, and December 31, 2020. The board of directors declared and paid a $5400 dividend in 2019 . In 2020, $21300 of dividends are declared and paid. What are the dividends received by the common stockholders in 2020 ?

$14000
$8600
$12700
$7000
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Answer 1

Step-by-step explanation:

The total amount of dividends to be paid to the preferred stockholders for both years can be calculated as follows:

Dividends for 2019: $50 par value * 5% dividend rate * 2800 shares = $7000

Dividends for 2020: $50 par value * 5% dividend rate * 2800 shares = $7000

Since the preferred stock is cumulative, any unpaid dividends from 2019 must also be paid in 2020 before any dividends can be paid to the common stockholders. The total amount of dividends to be paid to the preferred stockholders for 2020 is:

$7000 (unpaid dividends from 2019) + $7000 (dividends for 2020) = $14,000

The remaining amount of dividends available for the common stockholders can be calculated as follows:

$21,300 (total dividends declared and paid in 2020) - $14,000 (dividends paid to preferred stockholders) = $7,300

Therefore, the dividends received by the common stockholders in 2020 is $7,300. Answer: $7000.