Question

Gault Corporation had the following shares of stock outstanding on December 31, 2018:

Common stock, $50 par value, 200,000 shares outstanding
Preferred stock, 8 percent, $100 par value, cumulative, 20,000 shares outstanding
Dividends were in arrears for 2016 and 2017. On December 31, 2018, total cash dividends of $800,000 were declared.

The total amounts payable to preferred stockholders and common stockholders, respectively, are:

Answer 1

The total amounts payable to preferred stockholders and common stockholders, respectively, are: $480,000 and $320,000.

Step-by-step explanation:

Cumulative preferred stock has the dominant right over common stocks in term of receiving cash dividend.

The dividend paid to preferred stock per year is: 100 x 20,000 x 8% = $160,000 and the company owed investor 03 years of dividend ( 2016,2017,2018) with the dividend payable amounted to 160,000 x 3 = $480,000.

The dividend paid to common stock is the left over, after paying to preferred stock holders, which is calculated as $800,000 - $480,000 = $320,000.

So, The total amounts payable to preferred stockholders and common stockholders, respectively, are: $480,000 and $320,000.