Question

Tamarisk, Inc. has 12000 shares of 5%, $100 par value, non-cumulative preferred stock and 48000 shares of $1 par value common stock outstanding at December 31, 2017. There were no dividends declared in 2016. The board of directors declares and pays a $144000 dividend in 2017. What is the amount of dividends received by the common stockholders in 2017?

Answer 1

Answer:

$84,000

Explanation:

preference share dividend is at 5% on $100 par value. The  number of preference shares is 12,000 shares ( non cumulative)

The year 2017 preference share dividend pay out is 5% of 100 multiplied by 12,000 = $60,000

Deduct $ 60,000 from $144,000 dividend declared in 2017 , the balance is common stockholders dividend.

144,000 minus 60,000 = $84,000

Non cumulative preference shares dividend are paid first for the year the company declares dividend. The dividend is not cumulative ( prior years dividend for which company did not declare dividend are forfeited).

The common stockholders are paid dividend after preference shares dividend are paid. The common stockholders bears the full risk of the business as seen above. In event of liquidation, they are the last to be settled from realised asset of the bankrupt company.