Question

M. Sunland Corporation has 20,000 shares of 8%, $100 par value, cumulative preferred stock outstanding at December 31, 2020. No dividends were declared in 2018 or 2019. If M. Sunland wants to pay $500,000 of dividends in 2020, what amount of dividends will common stockholders receive

Answer 1

The common stockholders of M. Sunland Corporation will receive $340,000 in dividends.

Step-by-step explanation:

The preferred stockholders of M. Sunland Corporation will receive dividends before the common stockholders.

Cumulative preferred stockholders have the right to receive any missed dividends in the future, in addition to the current year's dividends.

In this case, the preferred stockholders will receive $160,000 ($100 par value * 0.08 dividend rate * 20,000 shares) in dividends for 2020.

The remaining amount of $340,000 ($500,000 - $160,000) will then be distributed to the common stockholders.