Question

Brewer Inc. has 5,000 shares of 8%, $50 par value, cumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2019, and December 31, 2018. The board of directors declared and paid a $15,000 dividend in 2018. In 2019, $60,000 of dividends are declared and paid. What are the dividends received by the preferred stockholders in 2019

Answer 1

Dividends received by the preferred stockholders in 2019 are $25,000.

What are shares?

• Shares signify ownership in a corporation.
• An individual becomes a shareholder in your business when they purchase shares.
• Shareholders decide who manages a corporation and participate in important decisions like whether a company should be sold.

What are preferred stocks?

• A component of share capital known as preferred stock is often regarded as a hybrid instrument since it might have any combination of characteristics that common stock does not, including characteristics of both an equity and a debt instrument.

Solution -

Annual dividend paid to stakeholder = 5000\times $50\times 8% = $20,000

Dividend declared and paid in 2013 = $15,000

Preferred dividend = $20,000 -$15,000

= $5,000

No dividend will be paid to common stockholders in 2014 until all 2013 dividends and 2014 annual dividends have been paid in full, therefore there will be $60,000 in dividends declared and paid in 2014. \

Preferred stockholders will receive $5000 for the 2013 dividend and $20,000 for the 2014 dividends.

The total dividends that preferred stockholders earned in 2014 were $5,000 + $20,000 = $25,000.

Therefore, dividends received by the preferred stockholders in 2019 are $25,000.

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