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Craft Company has 2,000 shares of 6%, $100 par value preferred stock outstanding at December 31, 2017. At December 31, 2022, the company declared a $60,000 cash dividend. Determine the dividend paid to preferred stockholders and common stockholders under each of the following scenarios.
The preferred stock is cumulative, and the company did not pay a dividend in each of the two previous years.
Preferred stockholders (3 x 2,000 x .06 x $100) $ 36,000
Common stockholders ($60,000 - $36,000) 24,000
Total dividends $60,000

Respuesta :

If the Total dividends $60,000, then Preferred stockholders (3 x 2,000 x .06 x $100) $ 36,000 and Common stockholders ($60,000 - $36,000) 24,000.

What is Preferred Stock?

The primary distinction between preferred stock and common stock is that the former has no voting rights. Therefore, preferred shareholders have no say in deciding who will serve on the board of directors of a corporation or how corporate policy will be implemented. In truth, preferred stock performs similarly to bonds because preferred shares typically come with a perpetual fixed dividend guarantee for investors.

The dollar amount of a dividend is subtracted from the stock's price to determine a preferred stock's dividend yield. This frequently depends on the par value prior to the offering of a preferred stock. After it starts trading, it is frequently determined as a percentage of the current market price. Contrast this with common stock, which provides fluctuating dividends that are always at the discretion of the board of directors. In fact, a lot of businesses don't even offer common stock dividends.

The par value of preferred shares is influenced by interest rates, just like that of bonds. The value of the preferred stock decreases as interest rates rise and vice versa. But with common stocks, supply and demand among market participants control the price of shares.

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