Question

The shareholders' equity of Green Corporation includes $200,000 of $1 par common stock and $400,000 of 6% cumulative preferred stock. The board of directors of Green declared cash dividends of $60,000 in 2011 after paying $20,000 cash dividends in each of 2010 and 2009. What is the amount of dividends common shareholders will receive in 2011?
a. 28000
b. 30000
c. 50000
d. 25000

Answer 1

Answer:

Option a (28000) is the right option.

Explanation:

Given:

Preferred stock,

= $400,000

In year 2009 and 2010, the dividends paid,

= $20,000 each year

Dividends declared,

= $60,000

Now,

The preferred dividend per year will be:

= $Preferred \ stock\times 6 \ percent$

= $400000\times 6 \ percent$

= $24,000$ ($)

Arrears in preferred dividend per year will be:

= $24000-20000$

= $4000$ ($)

For preferred stock, the total dividends arrears will be,

= $4000\times 2$

= $8000$ ($)

hence,

The dividends which are received by the common stock holders will be:

= $Dividends \ declared-Preferred \ dividend-Arrears \ in \ preferred \ dividend$

By putting the values, we get

= $60000-24000-8000$

= $28000$