Question

Nathan’s Athletic Apparel has 2,000 shares of 5%, $100 par value preferred stock the company issued at the beginning of 2017. All remaining shares are common stock. The company was not able to pay dividends in 2017, but plans to pay dividends of $22,000 in 2018.
Required: 1. & 2. Assuming the preferred stock is cumulative and noncumulative, how much of the $22,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders in 2018?
Cumlative Non Cumlative
preferred Dividends for 2018
preferred Dividends in arrears for 2017
Remaining Dividends to common stockholders
Total Dividens:

Answer 1

Answer and Explanation:

The computation is shown below:-

Particulars                                   Cumulative       Non Cumulative

Preferred dividends for 2018       $10,000              $10,000

Preferred dividend in

arrears for 2017                              $10,000               $0

Remaining Dividends to

Common stockholders                    $2,000             $12,000

Total Dividends                               $22,000           $22,000

Dividend payable to Preferred stockholders per year = (Number of shares × Par value) × Given percentage

= (2,000 × $100) × 5%

= $10,000