Question

M. Bramble Corporation has 14,000 shares of 8%, $100 par value, cumulative preferred stock outstanding at December 31, 2020. No dividends were declared in 2018 or 2019. If M. Bramble wants to pay $360,000 of dividends in 2020, what amount of dividends will common stockholders receive

Answer 1

Answer:

Dividend - Common stock = $24000

Explanation:

The cumulative preferred stock refers to the kind of preferred stock that accrues the dividends in case the dividend on these stocks is not paid in a certain year. Such dividend is to be paid first whenever the business declares dividends in the future.

The total dividend per year on the cumulative preferred stock for M. Bramble Corporation is,

Dividend - Preferred stock = 14000 * 100 * 0.08 = $112000

The dividends in arrears at the start of 2020 = 112000 * 2 = $224000

The total dividend payable on preferred stock at the end of 2020 = 224000 + 112000 = $336000

As the dividends on preferred stock is payable before dividends on common stock, the dividends on common stocks will be,

Dividend - Common stock = 360000 - 336000 = $24000