Question

There are 10,000 shares of $20 par value cumulative 7 percent preferred stock outstanding, and 90,000 shares of common stock outstanding. Last year, the preferred stock did not receive its dividend because of a loss. This year, dividends of $50,000 are distributed to shareholders.

Answer 1

Answer:

Since the preferred dividends are cumulative, any dividends not paid last year will be paid this year before any common dividends are paid.

Preferred dividends = 10,000 x $20 x 7% x 2 = $28,000

Dividends per preferred stock = $28,000 / 10,000 = $2.80

Common stocks dividends = $50,000 - $28,000 = $22,000

Dividends per common stock = $22,000 / 90,000 = $0.24