Question

Sunland Company has 10,000 shares of 8%, $100 par value, cumulative preferred stock outstanding at December 31, 2022. No dividends were declared in 2020 or 2021. If Sunland wants to pay $395,000 of dividends in 2022, what amount of dividends will common stockholders receive?

Answer 1

Answer:

The amount of dividends received by common stockholders is $155,000

Explanation:

The dividends to preferred shareholders is computed as:

Dividends to preferred shareholders = Shares × Price per share × 8% × Number of years

where

Shares are 10,000

Price per share is $100

Number of years is 3 (2020,2021 and 2022)

Putting the values above:

= 10,000 × $100 × 8% × 3

= $80,000 × 3

= $240,000

Now,

The amount of dividends received by common stockholders is computed as:

Amount = Dividends to be paid in year 2022 -Dividends to preferred shareholders

$395,000 - $240,000

= $155,000