Question

Written Inc. has outstanding 600,000 shares of $2 par common stock and 120,000 shares of no-par 6% preferred stock with a stated value of $5. The preferred stock is cumulative and participating. Dividends have been paid in every year except the past two years and the current year. Assuming that $270,000 will be distributed, how much will the common stockholders receive

Answer 1

Answer:

the common stockholders receive $162,000

Explanation:

Preference Shareholders have preference interest over the dividends of Written Inc. This means the preference share holders will be paid their dividends before the common shareholders receive theirs

Note : The preferred stock is cumulative meaning that any dividends in arrears would have to be paid first before payment of dividends relating to current year dividends are declared and issued

Preference Dividends Arrears

Past Two years = (120,000 shares×$5×6%)×2

                          =$72,000

Current Year     = 120,000 shares×$5×6%

                          =$36,000

Total = $72,000+$36,000 = $108,000

Dividends Paid to Common stockholders

Total Distributed Dividend                               $270,000

Less Distributed to Preference shareholders($108,000)

Paid to Common stockholders                        $162,000