Question

Aria’s, Inc. has 1,000 shares of 5%, $100 par value cumulative preferred stock and 10,000 shares of $1 par value common stock outstanding. The company has not paid dividends in two years. In its third year, it paid the common shareholders a $2 per-share dividend, plus the amount owed to preferred shareholders. What is the total amount of dividends paid?

Answer 1

Answer:

The total amount of dividends paid by Aria’s, Inc. is $30,000.

Explanation:

The total amount of dividends paid by Aria’s, Inc. can be obtained by adding the dividends paid to common shareholders and preferred stockholders as follows:

Annual dividend paid to cumulative preferred stockholders = Number of cumulative preferred shares * Par value of the share * Dividend rate = 1,000 * $100 * 5% = $5,000

Since Aria’s, Inc. has has not paid dividends in two years, the total dividend paid to cumulative preferred stockholders is as follows:

Total dividend paid to cumulative preferred stockholders = Annual dividend paid to cumulative preferred stockholders * 2 = $5,000 * 2 = $10,000

Dividend paid to common stockholders = Number of common shares * Common shares dividend per share = 10,000 * $2 = $20,000

Therefore, we have:

Total amount of dividends paid = Total dividend paid to cumulative preferred stockholders + Dividend paid to common stockholders = $10,000 + $20,000 = $30,000

Therefore,  the total amount of dividends paid by Aria’s, Inc. is $30,000.