Question

Rachel's Designs has 1,700 shares of 5%, $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 $14,000 in 2021. How much of the $14,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders

Answer 1

$12,750 and $1,250

Step-by-step explanation:

The computation of the dividend paid is shown below:

For 2021, the preference dividend is

= 1700 shares × $50 × 5%

= $4,250

Since in 2019 and 2020 the dividend is not paid

So, For 2019 and for 2020, the preference dividend is

= $4,250 × 2 years

= $8,500

So total preference dividend is

= $4,250 + $8,500

= $12,750

And, the total dividend paid is $14,000

So, for the common stockholder, it is

= $14,000 - $12,750

= $1,250