Question

Gault Corporation had the following shares of stock outstanding on December 31, 2018: Common stock, $50 par value, 200,000 shares outstanding Preferred stock, 8 percent, $100 par value, cumulative, 20,000 shares outstanding Dividends were in arrears for 2016 and 2017. On December 31, 2018, total cash dividends of $800,000 were declared. The total amounts payable to preferred stockholders and common stockholders, respectively, are:

Answer 1

Answer:

Dividends paid to preference and ordinary shareholders are

        $480,000  and $120,000 respectively

Explanation:

Common stock holders are the real risk bearers as they receive as dividends the residual amount after all other claims have been settled.

Preference shares entitles the holders to participate in a fixed dividend out of the profit made by the company. The divide is always a fixed percentage of the nominal value of the preference shares

Cumulative preference shares: Cumulative simply implies that should the company misses the payment of dividend in a particular year such unpaid dividend would be carried carried forward and paid in arrears in the following year/

Non-cumulative is the exact opposite of the case . Here, unpaid dividends are not paid in arrears in fact such are forfeited for life.

Preference dividends

2016 - 8% × $100 × 20,000=                           $160,000

2017 - 8% × $100 × 20,000 =                         $160,000

2018 - 8% × $100 × 20,000 =                         $160,00

Total paid in 2018                                            480,000

Dividends paid to common stock = $600,000 -480000

                                                     = $120,000

Dividend paid to preference and ordinary shreholders are

        $480,000  and $120,000 respectively