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1 June, 17:23

Colson Inc. declared a $240,000 cash dividend. It currently has 9,000 shares of 7%, $100 par value cumulative preferred stock outstanding. It is one year in arrears on its preferred stock.

How much cash will Colson distribute to the common stockholders?

a. $114,000. b. $126,000. c. $177,000. d. None.

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  1. 1 June, 20:27
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    Option (a) $114,000

    Explanation:

    Data provided in the question:

    Dividend declared = $240,000

    Shares outstanding = 9,000

    Interest = 7%

    Now,

    Value of share = $100 * 9,000

    = $900,000

    Dividend to Preference Stock Holders Arrears = 7% of Value of share

    = 0.07 * $900,000

    = $63,000

    Dividend to Preference Stock Holders = $63,000

    Therefore,

    Dividend to Common Stock Holders

    = $240,000 - $63,000 - $63,000

    = $144,000

    Option (a) $114,000
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