Question

ABC issues 1,000 shares of 6%, $100 par value preferred stock at the beginning of 2017. All remaining shares are common stock. The company was not able to pay dividends in 2017, but plans to pay dividends of $18,000 in 2018. Assuming the preferred stock is noncumulative, how much of the $18,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders in 2018

Answer 1

Answer and Explanation:

The computation of the dividend paid to preferred stockholder and common stockholder is given below;

Since the preference dividend would be

= 1,000 shares × $100 × 6%

= $6,000

For 2 years, it would be $12,000

Now the remaining shares left is

= $18,000 - $12,000

= $6,000

hence, the dividend paid to preferred stockholder and common stockholder is $12,000 and $6,000 respectively