Question

Assuming that total dividends declared in 2017 were $64,000, and that the preferred stock is not cumulative but is fully participating, common stockholders should receive 2017 dividends of what amount?
Common stockholders should receive $

Answer 1

Answer:

$40,235

Explanation:

Dividend distributed to preferred share is based on the predetermined rate associated with these share. When the dividend is declared preferred share dividend is paid first. The remainder is distributed between the common stockholders.

Dividend Declared = $64,000  

Preferred Dividend = $100,000 x 7% = $7,000

Participation

Preferred Shares = $100,000 / $20 = 5,000 shares

Common shares = 12,000 shares

Total Shares = 12,000 + 5,000 = 17,000 shares

on Pro-rata basis

Participation dividend to preferred stockholder = ($64,000 - $7,000) x 5000 / 17000 = $16,765

Dividend to common stock holders = $64,000 - $7,000 - $16,765 = $40,235