Question

California Adventures issues 5,000 shares of 8%, $100 par value preferred stock at the beginning of 2020. All remaining shares are common stock. The company was not able to pay dividends in 2020, but plans to pay dividends of $100,000 in 2021. Assuming the preferred stock is cumulative, how much of the $100,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders in 2021?

Answer 1

$40,000 to preferred stockholders & $60,000 to common stockholders is the correct answer.

Step-by-step explanation:

The computation of Dividend paid to preferred stock and Dividend paid to common stockholders in 2021 is shown below:-

Dividend paid to Non-cumulative preferred stock = Issued shares × Par value of preferred stock × Issued shares percentage

= 5,000 × $100 × 8%

= $40,000

Dividend paid to common stockholders = Dividends in 2021 - Dividend paid to Non-cumulative preferred stock

= $100,000 - $40,000

= $60,000