Question

Colliers, Inc. has 130,000 shares of cumulative preferred stock outstanding. The preferred stock pays dividends in the amount of $3 per share, but because of cash flow problems, the company did not pay any dividends last year. The board of directors plans to pay dividends in the amount of $900,000 this year. 1. What amount will go to preferred stockholders? 2. How much will be available for common stock dividends?

Answer 1

Preferred stockholders of Colliers, Inc. will receive $780,000 in dividends, accounting for this year's and last year's dividends due to their cumulative nature. Following this payment, $120,000 will remain for common stock dividends.

Step-by-step explanation:

Dividend Distribution for Preferred and Common Stockholders

Colliers, Inc. has 130,000 shares of cumulative preferred stock outstanding, paying a dividend of $3 per share. The company did not pay dividends last year; however this year, the board plans to distribute $900,000 in dividends. To determine the amount allocated to preferred stockholders, we multiply the number of preferred shares (130,000) by the dividend rate ($3), which equals $390,000. Since these are cumulative dividends, the preferred stockholders are entitled to this year's dividend plus any arrears. Therefore, the preferred stockholders will receive $390,000 for this year's dividend and $390,000 for last year's missed dividend, totaling $780,000.

Once the preferred dividends are paid, we subtract this amount from the total dividend amount that the board planned to pay ($900,000 - $780,000), leaving $120,000 available for the common stock dividends.

In summary, the preferred stockholders will receive $780,000 in dividends, and $120,000 will be available for distribution to common stockholders.

Answer 2

1) Amount which will go to preferred stockholders is $400,000.

2) Amount which will be available for common stock dividend is $600,000.

Step-by-step explanation:

Amount of shares for the past year is given as = 100,000shares × $2

= $200,000

Amount of shares for the current year is given as = 100,000shares × $2

= $200,000

Therefore, the total amount that will go to preferred shareholders is:

= $200,000 + $200,000

=$400,000

The amount which will be available for common stock dividend is:

= $1,000,000 - $400,000

= $600,000

Thus, the amount which will go to preferred stockholders is $400,000 while the amount available for common stock dividend is $600,000.