Question

M. Sunland Corporation has 20,000 shares of 8%, $100 par value, cumulative preferred stock outstanding at December 31, 2020. No dividends were declared in 2018 or 2019. If M. Sunland wants to pay $500,000 of dividends in 2020, what amount of dividends will common stockholders receive

Answer 1

Answer:

$260,000

Explanation:

Lets analyse the following

Total dividend = 20,000 × 8% × $100 = $160,000

Preferred dividends in arrears for two years ($160,000 × 2)= $ 320,000

Preferred for current year 160,000

Total to preferred stockholders =240,000

Total dividends available in the year 2020= (500,000)  

Amount available to common stockholders = (500,000-240,000)=$ 260,000