Question

Sweet Company’s outstanding stock consists of 1,000 shares of noncumulative 5% preferred stock with a $100 par value and 10,000 shares of common stock with a $10 par value. During the first three years of operation, the corporation declared and paid the following total cash dividends.
Dividend Declared: Year 1 - $2,000, Year 2 - $6,000, Year 3 - $32,000.
The total amount of dividends paid to preferred and common shareholders over the three-year period is?

Answer 1

Answer:

preferred stockholders received $15,000 during the first 3 years

• $2,000 in the first year
• $6,000 in the second year
• $7,000 in the third year

common shareholders received $25,000 in dividends during the third year.

Explanation:

preferred stock = 1,000 shares x $100 par value x 5% = $5,000

common stock = 10,000 shares at $10 par value

dividends declared and paid during the first 3 years:

year       dividends

1               $2,000

2              $6,000

3            $32,000

preferred stockholders should have received $5,000 per year x 3 years = $15,000. Preferred stockholders must be paid first, and their payment is fixed. If the dividends are not enough to pay the total amount, the remaining amount should be paid next year.

• $2,000 in the first year
• $6,000 in the second year
• $7,000 in the third year

common shareholders received $32,000 - $7,000 = $25,000 in dividends during the third year.