Question

ABC Company’s outstanding stock consists of 1,900 shares of noncumulative 5% preferred stock with a $100 par value and 11,900 shares of common stock with a $10 par value. During the first three years of operation, the corporation declared and paid the following total cash dividends. Dividend Declared year 1 $ 3,900 year 2 $ 9,800 year 3 $ 41,500 The total amount of dividends paid to preferred and common shareholders over the three-year period is:

Answer 1

Preferred dividends paid = $22,900

Common dividends paid = $32,300

Step-by-step explanation:

As per the data given in the question,

Total value of preferred shares = 1,900 × $100

= $190,000

Annual preferred dividend = $190,000 × 5%

= $9,500

Until $9,500 is not paid in dividends to the preferred shareholders, dividends will not be paid to the common stockholders.

The preferred stock is non-cumulative which indicates, in any year if no preferred dividends are paid or preferred dividends of less than $9,600 is paid in any year, the balance of preferred dividends will not be carried to next year.

So,

Preferred dividends paid = $3,900 + $9,500 + $9,500

= $22,900

Common dividends paid = ( $3900 + $9,800 + $41,500) - $22,900

= $32,300