Question

Morton Company began operations on January 1, 2019. The company has the following items included in its stockholders’ equity section of the balance sheet on December 31, 2020: 6% Preferred stock, $100 par, 100,000 shares authorized, 25,000 shares issued and outstanding $2,500,000 Common stock, $3 par, 500,000 share authorized; 150,000 shares issued and outstanding 450,000 Additional paid-in capital 2,250,000 Total dividends for 2019 & 2020 were: During 2019, Dividends not paid During 2020, Dividends Declared and paid $160,000 If Morton Company’s preferred stock was noncumulative, how much of the 2020 dividends would have been distributed to preferred and common stockholders?

Answer 1

Preferred dividend = $150,000

Common Dividend = $10,000

Step-by-step explanation:

Given the following :

Number of shares issued and outstanding = 25,000

Par value = $100

Dividend rate on Preffered stock = 6%

2019 Dividend = Not paid

2020 Dividend = $160,000 declared and paid

If preferred Dividend was non-cummulative:

Value of Preferred dividend = (Preffered shares issued and outstanding * par value * preferred dividend rate)

Value of preferred dividend = (25,000 * $100 * 0.06) = $150,000

Common dividend = (Total Dividend declared and paid - value of preferred dividend)

Value of Common Dividend = ( $160,000 - 150,000) = $10,000

Preferred dividend = $150,000

Common Dividend = $10,000