Question

Sunland Company has outstanding 500000 shares of $2 par common stock and 150000 shares of no-par 7% preferred stock with a stated value of $4. Dividends have been paid in every year except the past two years and the current year. Assuming that $340000 will be distributed, and the preferred stock is cumulative and participating, how much will the common stockholders receive
A. $ 84000.B. $160000.
C. $214000.D. $180000.

Answer 1

Answer:

Total dividend paid = $340,000

Preferred dividend = 7% x $4 x 150,000 x 3 years = $126,000

Dividend paid to common stock holders

= $340,000 - $126,000

= $214,000

The correct answer is C

Explanation:

There is need to calculate the preferred dividend for 3 years, which is a function of dividend rate, current market price, number of preferred stocks outstanding  and number of years. The current market price of the preferred stock is used for the computation because the preferred stock has no par value. Then, the amount of dividend paid to common stock holders is the difference between the total dividend paid and preferred dividend.