Question

Orleans Inc. was incorporated on January 1, 2012. Orleans issued 4,000 shares of common stock and 500 shares of preferred stock on that date. The preferred stock is cumulative, $100 par, with an 8% dividend rate. Orleans has not paid any dividends yet. In 2015, Orleans had its first profitable year, and on November 1, 2015, Orleans declared a total dividend of $28,000. Calculate the amount that will be paid out to a) preferred shareholders b)common shareholders Show your work.

Answer 1

Answer:

(a) $16,000

(b) $12,000

Explanation:

Given that,

Shares of common stock issued = 4,000

Shares of preferred stock issued = 500

Preferred stock is cumulative, $100 par, with an 8% dividend rate.

Total dividend declared = $28,000

(a) Dividend for the year 2015:

= shares issued × Par value × Dividend rate

= 500 × $100 × 8%

= $4,000

Arrear for the three years:

= Dividend for the year 2015 × No. of years

= $4000 × 3

= $12,000

Therefore, the dividend paid to preferred stockholder's:

= Dividend for the year 2015 + Arrear for the three years

= $4,000 + $12,000

= $16,000

(b) Dividend paid to common stockholder's:

= Total dividend paid - Dividend paid to preferred stockholder's

= $28,000 - $16,000

= $12,000