Question

Waterway industries, has 4700 shares of 5%, $50 par value, cumulative preferred stock and 100000 shares of $1 par value common stock outstanding at december 31, 2018, and december 31, 2017. the board of directors declared and paid an $7900 dividend in 2017. in 2018, $36100 of dividends are declared and paid. what are the dividends received by the preferred stockholders in 2018? $31400 $11750 $23500 $15600

Answer 1

Since the preferred stocks are cumulative in nature, the dividend amount not paid in the current year will be accumulated and paid in the next year.

Preferred dividend to be paid in 2017 = Value of preferred stock x Dividend rate

= (4700 x $50) x 5%

= 11750

Dividend to be paid in 2018 = same as 2017 as no new preferred stock issued

= 11750

Total dividend to be paid in 2018 = Dividend to be paid in 2018 + Dividend to be paid in 2017 – Dividend paid in 2017

= 11750 +11750 -7900

= $15600