Question

Outstanding stock of the Blue Corporation included 50000 shares of $5 par common stock and 18000 shares of 5%, $10 par non-cumulative preferred stock. In 2019, Blue declared and paid dividends of $7500. In 2020, Blue declared and paid dividends of $25000. How much of the 2020 dividend was distributed to preferred shareholders

Answer 1

The dividends to be distributed among preferred stockholders in 2020 is $9000

Step-by-step explanation:

The preferred stock holders are always paid dividends before the common stock holders. The amount left after paying preferred stockholders is paid to common stockholders as dividends.

Non cumulative preferred stock does not accrue or accumulates dividends. Thus, if dividends are not paid in a particular year, the company has no obligation to pay these dividends ever in the future.

Preferred stock dividend per year = 18000 * 10 * 0.05

Preferred stock dividend per year = $9000

As the preferred stock is non cumulative, then the remaining dividends for 2019 (which are 9000 - 7500 = $1500) will not be paid in 2020.

So, the preferred stock dividends to be paid in 2020 will be $9000 as the declared dividends are more than that required to pay the preferred stockholders.