Question

At the beginning of 20X1, a company issues 100,000 shares of 4%, $10 par value, cumulative preferred stock. All remaining shares outstanding are common stock. The company does not pay any dividends in 20X1, but pays dividends of $100,000 at the end of 20X2. How much of the dividend will be paid to common stockholders in 20X2?

Answer 1

Answer:

$20,000

Explanation:

For computing the preferred dividend, first we have to find out the yearly dividend which is shown below:

= Number of shares × par value per share × dividend rate

= 100,000 shares × $10 × 4%

= $40,000  

So, the total preference dividend in 2018 would be

= Yearly dividend in 20X1 + Yearly dividend in 20X2

= $40,000 + $40,000

= $80,000

Out of $100,000, the $80,000 will be paid to preference stockholders and the remaining $20,000 will be paid to equity stockholders