Question

The shareholders’ equity of Tru Corporation includes $680,000 of $1 par common stock and $1,280,000 par value of 7% cumulative preferred stock. The company paid $68,000 cash dividends in Year 1 and another $68,000 cash dividends in Year 2. The board of directors of Tru declared cash dividends of $158,000 during Year 3. What is the amount of the cash dividends that will be paid to the common shareholders in Year 3?

Answer 1

Answer:

The company will pay 25,200 dollars of dividend to common stock

Explanation:

First:

We calculate the dividend for preferred stock:

1,280,000 preferred stock

x 7% dividends

89,600

Next we calculate the arrears dividends:

Year 1  68,000 - 89,600 = 21,600 unpaid

Year 2 68,000 - 89,600 = 21,600 unpaid

Total                                  43,200 unpaid

Now we calculatethe current year:

Year 3               158,000

current year      -89,600

arrears             -43,200

Div for CS         25,200