Question

Burkert Company has​ 50,000 shares of​ $1 par value common stock issued and outstanding. The company also has 4,000 shares of​ $100 par​ value, 4​% cumulative preferred stock outstanding. Burkert did not pay the preferred dividends in 2014 and 2015. What amount of dividends must the company declare in 2016 for the common stockholders to receive a dividend of​ $1?

A.$ 48 comma 000$48,000
B.$ 16 comma 000$16,000
C.$ 64 comma 000$64,000
D.$ 32 comma 000

Answer 1

A. $48 comma 000 $48,000

Step-by-step explanation:

The total dividend to be declared in 2016 = Preference dividend outstanding + common stock holder dividend.

Burkert company has not declared any preference dividend in 2014 and 2015. The preference dividends are cumulative and the company has to pay prior years dividends also. The annual preference dividend amounts $16,000 (4,000 shares * $100 par value * 4% preferred stock)

The cumulative preference dividend for 3 years 2014, 2015 and 2016 will be $16,000 * 3 years = $48,000

The common stock dividend that a company must declare in order for every shareholder to receive atleast $1 is $50,000.