Question

Halsted, Inc., has outstanding 10,000 shares of $200 par value, 7% nonparticipating, cumulative preferred stock and 10,000 shares of $40 par value common stock. If the dividend on preferred stock is one year in arrears, and the total cash dividend declared this year is $288,000, then the total amounts distributed to preferred and common stockholders, respectively, are:

Answer 1

Preferred stock holders' dividend = $280000

Common stock holders' dividend = $8000

Step-by-step explanation:

A cumulative preferred stock is one whose dividends are accumulated in arrears and are to paid in the following year(s), if the company fails to pay or partially pay the dividends in a certain year. The yearly dividend on preferred stock is,

Preferred stock dividend = 10000 * 200 * 0.07 = $140000

As the dividends on preferred stock are in arrears for one year, the company will pay a dividend this year on preferred stock of,

Preferred stock dividend to be paid = 140000 + 140000 = $280000

Thus, out of the announced dividend of $288000, $280000 will be paid to the preferred stock holders while the remaining $8000 will be paid to the common stock holders.