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3 January, 17:12

Art, Inc., has 5,000 shares of 4%, $100 par value, cumulative preferred stock and 20,000 shares of $1 par value common stock outstanding at December 31, 2018. There were no dividends declared in 2016. The board of directors declares and pays a $45,000 dividend in 2017 and in 2018. What is the amount of dividends received by the common stockholders in 2018?

$25,000

$20,000

$45,000

$0

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Answers (1)
  1. 3 January, 19:32
    0
    Dividend paid to Common Stockholders = $25000

    so correct option is a. $25,000

    Explanation:

    given data

    shares outstanding = 5,000

    Par value = $100

    Dividend Rate = 4%

    common stock outstanding = 20,000 shares

    par value = $1

    dividend = $45,000

    to find out

    What is the amount of dividends received by the common stockholders in 2018

    solution

    first we get here Value of Preferred Stock that is express as

    Value of Preferred Stock = Number of shares outstanding * Par value ... 1

    put here value we get

    Value of Preferred Stock is = 5,000 * $100

    Value of Preferred Stock is = $500,000

    and

    Annual Dividend will be here

    Annual Dividend = Value of Preferred Stock * Dividend Rate ... 2

    put here value we get

    Annual Dividend = $500,000 * 4%

    Annual Dividend = $20,000

    and

    so as for 2017 Dividend paid is here as

    Dividend paid to Preferred Stockholders = for 2016 + for 2017

    Dividend paid to Preferred Stockholders = $20,000 + $20,000 = $40000

    so Dividend paid to Common Stockholders = $45000 - $40000 = $5000

    and

    for 2018 Dividend paid is here as

    Dividend paid to Preferred Stockholders is = $20,000 for the 2018

    so

    Dividend paid to Common Stockholders will be = $45000 - $20000

    Dividend paid to Common Stockholders = $25000

    so correct option is a. $25,000
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