Question

Howard Company has 10,000 shares of $200 par value, 6% cumulative preferred stock and 150,000 shares of $50 par value common stock. Howard declares and pays cash dividends amounting to $800,000. If no arrearage on the preferred stock exists, how much in total dividends is paid to each class of stock

Answer 1

Answer:

Dividend - Preferred stock = $120000

Dividend - Common stock = $680000

Explanation:

The amount of dividend that is paid to each class of stock can be calculated by first calculating the dividend payable to preferred stock. The amount of dividend on preferred stock is fixed and is paid before the common stockholders are paid. Thus, dividend on preferred stock per year is,

Dividend - Preferred stock = 10000 * 200 * 0.06 = $120000

Thus, out of $800000 cash dividends, $120000 will be paid on the cumulative preferred stock.

Remaining dividend = 800000 - 120000 = $680000

The remaining $680000 will be paid to the common stockholders.