Question

The shareholders' equity of Green Corporation includes $200,000 of $1 par common stock and $400,000 par of 6% cumulative preferred stock. The board of directors of Green declared cash dividends of $50,000 in 2018 after paying $20,000 cash dividends in each of 2017 and 2016. What is the amount of dividends common shareholders will receive in 2018?

Answer 1

Solution - $18,000

$18000 will be paid to common stockholders in 2018.

     Par Value per Preferred share Dividend rate Dividend for preferred share  

Annual Preferred Dividend: 400000 6.00% $ 24,000.00  

Year Total Cash dividend Paid Paid to Preferred Paid to common Dividends in arrears at year-end  

2016            $ 20,000.00 $ 20,000.00              $ 0 $ 4,000  

2017            $ 20,000.00 $ 20,000.00               $ 0 $ 8,000  

2018             $ 50,000.00 $ 32,000.00        $ 18,000  

. Cumulative preferred stockholders will get their dividend along with dividend in arrears for last 2 years and then the left will be paid to common stockholders.