Question

Rachel's Designs has 2,000 shares of 7%, $50 par value cumulative preferred stock issued at the beginning of 2019. All remaining shares are common stock. Due to cash flow difficulties, the company was not able to pay dividends in 2019 or 2020. The company plans to pay total dividends of $23,000 in 2021. How much of the $23,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders?
Preferred dividends in arrears for 2019 and 2020?
Preferred dividends for 2021?
Total Dividends?

Answer 1

Answer:

Dividend of preferred shares = No of shares * Dividend percent * Par value of shares = 2,000 * 7% * $50 = $7,000

Hence, dividend in arrears for the year 2019 and 2020 is $14,000 ($7,000+$7,000). Dividend for 2021 is $7,000

Description                                                                             Amount

Preferred dividend in arrear for the year 2019 and 2020  $14,000

Add: Preferred dividend for the year 2021                          $7,000

Total preferred dividend                                                       $21,000

Less: Total dividend                                                               $23,000

Dividend for common shareholder                                     ($2,000)

Hence, dividend paid for cumulative preferred share in the year 2021 is $21,000 and the amount paid for common shareholders is $2,000