Question

Aim, Inc., has 10,000 shares of 4%, $100 par value, noncumulative preferred stock and 40,000 shares of $1 par value common stock outstanding at December 31, 2018. There were no dividends declared in 2017. The board of directors declares and pays a $120,000 dividend in 2018. What is the amount of dividends received by the common stockholders in 2018?

Answer 1

$80,000

Step-by-step explanation:

To calculate dividend to common stock holders we deduct the dividend paid to non cumulative preferred stock from the total dividend. This is shown below:

Divided paid to Preferred Stock = 10,000 x 100 x 0.04 = $40,000

Dividend paid to Common Stockholders = 120,000 - 40,000 = $80,000

Hence, the dividend paid to common stockholders in 2018 is $80,000.

Answer 2

Common dividends= $80,000

Step-by-step explanation:

A non-cumulative preference shares qualifies the investors to receive a fixed amount of dividend . However, where dividends are not paid in a particulars those arrears dividend are lost and never carried forward to subsequent years for payment.

Preference dividend= Fixed dividend % × Nominal value of shares

A common stock on the other, entitles the shareholders to residual dividends after he claims of preference share holders have been met.

The common dividend = Total dividends - preference dividends

= 120,000 - (4%× 10,000× 100)

= 80,000