A company has 1,000 shares of $50 par value, 4.5% cumulative and nonparticipating preferred stock and 10,000 shares of $10 par value common stock outstanding. The company paid total cash dividends of $1,000 in its first year of operation. The cash dividend that must be paid to preferred stockholders in the second year before any dividend is paid to common stockholders is

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Bianca

11 April, 07:56

A company has 1,000 shares of $50 par value, 4.5% cumulative and nonparticipating preferred stock and 10,000 shares of $10 par value common stock outstanding. The company paid total cash dividends of $1,000 in its first year of operation. The cash dividend that must be paid to preferred stockholders in the second year before any dividend is paid to common stockholders is

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Sydnee · Answer 1

Answer: $3500

Explanation:

Preferred stock:

Number of shares = 1000

Par value = $50

4.5% cumulative

Common stock:

Number of shares = 10000

Par value = $10

Total first-year cash dividend paid = $1000

The cash dividend that must be paid to preferred stockholders in the second year before any dividend is paid to common stockholders is:

Preferred Stock dividend = 1000 * 0.045 * 50 = $2250

Unpaid dividend from year 1 = $2250 - $1000 = $1250

Year 2 dividend = $2250

Total dividend due in year 2 = $ (1250 + 2250) = $3500