Question

Trusper Company was organized on January 1, Year 1 and has had 1,000 shares of $200 par value, 10% cumulative preferred stock outstanding and 3,000 shares of $1 par value common stock outstanding since that time. Dividends have been declared and paid as follows: $5,000 in Year 1 and $75,000 during Year 2. What is the total amount of dividends that will be paid to common stockholders during Year 2?

Answer 1

Answer:

Trusper Company

The total amount of dividends that will be paid to common stockholders during Year 2 is:

$40,000.

Explanation:

a) Data and Calculations:

10% cumulative preferred stock = $200,000 ($200 * 1,000)

Common stock = $3,000 (3,000 * $1)

Dividends in Year 1 for cumulative preferred stockholders = $20,000 ($200,000 * 10%)

Dividends outstanding after Year 1 for cumulative preferred stockholders = $15,000 ($20,000 - $5,000)

Dividends for Year 2 for cumulative preferred stockholders = $35,000 ($20,000 + $15,000).

Total dividend paid to common stockholders during Year 2 = $40,000 ($75,000 - $35,000)

b) The unpaid cumulative preferred stock dividend of $15,000 for Year 1 will be added to the dividend of the Year 2.  The common stockholders are not paid any dividends in Year 1.  But in Year 2, they will get $40,000 after the cumulative preferred stock dividends are paid.