Question

Martinez Corp. has 2,800 shares of 9%, $103 par value preferred stock outstanding at December 31, 2017. At December 31, 2017, the company declared a $121,000 cash dividend. Determine the dividend paid to preferred stockholders and common stockholders under each of the following scenarios. 1. The preferred stock is noncumulative, and the company has not missed any dividends in previous years.

Answer 1

Answer:

dividend for preference shareholder is $25,956 and for common shareholder is $95,044

Explanation:

Preference stock  and common stock are almost same but with difference that when a company issues preferential shares to some investors, they give those preference shareholders some preferential rights , such as when a company is declaring dividend , they will give dividends first to preference shareholders first and then common stockholders.

Here it is given that the preference stock are non cumulative which means that if company has given some dividends in the past and some preference shareholders haven't got those dividends , these shareholders don't have any right to ask company for those unpaid dividends.

For calculating the dividend for preference shareholder we will use =

Par value of stock x Rate of interest x Number of preference stock

= $103 x 9% x 2800

= $103 x .09 x 2800

= $25,956

Therefore the value of dividends given to preference shareholders is $25,956,

Given amount dividends by company - $121,000

which means the rest of the dividend is for common shareholders,

dividend for common shareholder = $121,000 - $25,956

                                                         = $95,044