Question

Rachel's Designs has 2,000 shares of 7%, $50 par value cumulative preferred stock issued at the beginning of 2019. All remaining shares are common stock. Due to cash flow difficulties, the company was not able to pay dividends in 2019 or 2020. The company plans to pay total dividends of $23,000 in 2021. How much of the $23,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders

Answer 1

the dividend paid to preferred stockholders and paid to common stockholders is $21,000 and $2,000 respectively

Step-by-step explanation:

The computation of the dividend paid to preferred stockholders and paid to common stockholders is shown below:

For preferred stockholders

= (2,000 × 7% × $50) × 3 years (2019,2020 and 2021)

= $7,000 × 3 years

= $21,000

And, for common stockholders

= $23,000 - $21,000

= $2,000

Hence, the dividend paid to preferred stockholders and paid to common stockholders is $21,000 and $2,000 respectively