Question

Whispering Winds Corp. has 10,400 shares of 8%, $100 par value, cumulative preferred stock outstanding at December 31, 2022. No dividends were declared in 2020 or 2021. If Whispering Winds wants to pay $380,000 of dividends in 2022, what amount of dividends will common stockholders receive

Answer 1

The amount of dividends that common shares holders will receive is $130400

Step-by-step explanation:

The cumulative preferred shares are the shares that will accumulate dividends or accrue dividends in case the dividends on these shares are not paid or paid partially in a year. The dividends that are accumulated will need to be paid first whenever the company declares dividends.

The amounts of dividends on preferred share for one year are,

Dividends - Preferred shares = 10400 * 0.08 * 100 = $83200

Thus, the accumulated dividends on these preferred shares at start of 2022 are,

Accumulated dividends - Preferred shares = 83200 * 2 = $166400

The common shares holders are paid after the preferred share holders have been paid. this means that we will deduct the amount of accumulated dividends on preferred share and the dividends for this year on preferred shares from the amount of dividends that the company plans to pay to reach at the amount that will be paid to common share holders as dividends.

Dividends - Common Stockholders = 380000 - (166400 + 83200)

Dividends - Common Stockholders = $130400