Question

Landers Flynn Inc. has 1,000 shares of $5 cumulative preferred stock outstanding. Dividends were not paid last year. The corporation also has 5,000 shares of common stock outstanding. Landers Flynn declared a $14,000 cash dividend to be paid in the current year.

Required:
Calculate the amount of dividends received by
1. the preferred stockholders;
2. the common stockholders.

Answer 1

The preferred stockholders $10,000

Common stockholders $4,000

Step-by-step explanation:

The cumulative effect of the preferred stock is that the holders are entitled to arrears of dividends, in other words, they would receive this year last year's dividends in addition to current year's.

annual preferred stock dividends=dividend per share*number of preferred stock.

annual preferred stock dividends=$5*1000=$5000

dividends for 2 years=$5000*2=$10,000

common stock dividends=$14,000-$10,000=$4000