Question

The shareholders' equity of Green Corporation includes $200,000 of $1 par common stock and $400,000 par of 6% cumulative preferred stock. The board of directors of Green declared cash dividends of $50,000 in 2021 after paying $20,000 cash dividends in each of 2020 and 2019. What is the amount of dividends common shareholders will receive in 2021?

Answer 1

The amount of dividends that common shareholders will receive is $18000

Step-by-step explanation:

The preferred stocks are paid before the common stock holders and the cumulative preferred stock is the stock which accumulates dividends if they are not paid fully in a certain period.

The preferred stock dividend per year is,

Dividend per year-Preferred stock = 400000 * 0.06 = 24000 per year

Preferred dividend outstanding form 2019 and 2020 equals,

• 2019 = 24000 - 20000 = $4000
• 2020 = 24000 - 20000 = $4000

Preferred stock dividend to be paid in 2021 = 24000 + 4000 + 4000 = $32000

Dividends that will be paid to common stock holders is = 50000 - 32000 = $18000