Question

Colliers, Inc. has 130,000 shares of cumulative preferred stock outstanding. The preferred stock pays dividends in the amount of $3 per share, but because of cash flow problems, the company did not pay any dividends last year. The board of directors plans to pay dividends in the amount of $900,000 this year. 1. What amount will go to preferred stockholders? 2. How much will be available for common stock dividends?

Answer 1

Answer:

1) Amount which will go to preferred stockholders is $400,000.

2) Amount which will be available for common stock dividend is $600,000.

Explanation:

Amount of shares for the past year is given as = 100,000shares × $2

= $200,000

Amount of shares for the current year is given as = 100,000shares × $2

= $200,000

Therefore, the total amount that will go to preferred shareholders is:

= $200,000 + $200,000

=$400,000

The amount which will be available for common stock dividend is:

= $1,000,000 - $400,000

= $600,000

Thus, the amount which will go to preferred stockholders is $400,000 while the amount available for common stock dividend is $600,000.