Question

Stockholders’ equity of Ernst Company consists of 82,000 shares of $5 par value, 10% cumulative preferred stock and 290,000 shares of $1 par value common stock. Both classes of stock have been outstanding since the company’s inception. Ernst did not declare any dividends in the prior year, but it now declares and pays a $135,000 cash dividend at the current year-end.

Answer 1

Answer:

Common stock dividend = $77,000

Preferred dividend = $58,000

Explanation:

Given,

Common stock = 82,000 shares, $5 par value

Total common stock = 82,000 shares x $5 = $410,000

Preferred stock = 290,000 shares, $1 par value

Preferred stock = $290,000

Preferred dividend for the current year = $290,000 x 10% = $29,000

Since, the preferred dividend is cumulative, the company has to pay the previous year's preferred dividend too.

Therefore, Preferred dividend for the previous year = $29,000

Total preferred dividend for the two-year = $29,000 + $29,000 = $58,000

Total dividend = Preferred dividend + Common stock dividend

or, $135,000 = $58,000 + Common stock dividend

or, Common stock dividend = $135,000 - $58,000

Common stock dividend = $77,000