Question

Kelley Company reports $1,250,000 of net income for 2017 and declares $175,000 of cash dividends on its preferred stock for 2017. At the end of 2017, the company had 380,000 weighted-average shares of common stock. 1. What amount of net income is available to common stockholders for 2017

Answer 1

Net Income available to common stockholders = $1075000

Step-by-step explanation:

The preferred stock holders have a preference over the common stockholders in the distribution of dividends as they are paid before the common stock holders and receive a fixed amount of dividend. However, the net income that is available to common stock holders is all the net income that is left after deducting the preferred stock dividend from it.

Thus, the net income available to common stockholders can be calculated as,

Net Income available to common stockholders = Net Income - Preferred stock dividend

Net Income available to common stockholders = 1250000 - 175000

Net Income available to common stockholders = $1075000