Question

California Adventures issues 5,000 shares of 8%, $100 par value preferred stock at the beginning of 2020. All remaining shares are common stock. The company was not able to pay dividends in 2020, but plans to pay dividends of $100,000 in 2021. Assuming the preferred stock is noncumulative, how much of the $100,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders in 2021?

Answer 1

Answer :

Preferred stockholder = $40,000

Common stockholder = $60,000

Explanation :

As per the data given in the question,

Particulars                             Dividend                   Amount

Dividend paid to Non-cumulative preferred stock (5,000 × $1000 × 8%) $40,000

Dividend paid to common stockholders ($100,000 - $40,000) $60,000

Total $100,000

Since preference share are non-cumulative in nature therefore if company fails to pay dividend in any year then this dividend can not be claimed by shareholder further.

Hence, Dividend on 8% non-cumulative preferred stock for 2020 lapsed and only $40,000 remained which will be the considered of preferred dividend stock for 2021.

So, $40,000 to preferred stockholder

and the remaining $60,000 is for common stockholder.