Nathan's Athletic Apparel has 1,500 shares of 6%, $100 par value preferred stock the company issued at the beginning of 2020. All remaining shares are common stock. The company was not able to pay dividends in 2020, but plans to pay dividends of $20,000 in 2021.

Required: 1. & 2. Assuming the preferred stock is cumulative and noncumulative, how much of the $22,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders in 2018?

Question

Business

Mercedes Shelton

15 February, 13:08

Nathan's Athletic Apparel has 1,500 shares of 6%, $100 par value preferred stock the company issued at the beginning of 2020. All remaining shares are common stock. The company was not able to pay dividends in 2020, but plans to pay dividends of $20,000 in 2021.

Required: 1. & 2. Assuming the preferred stock is cumulative and noncumulative, how much of the $22,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders in 2018?

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Answers (1)

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Jazlene Brady · Answer 1

Dividend for preferred stockholders = $9,000

Dividend for Common stockholders = $13,000

Explanation:

Preferred Dividend = Total Value of Preferred share x Rate of preferred dividend

Preferred Dividend = (1500 x $100) x 6%

Preferred Dividend = $150,000 x 6%

Preferred Dividend = $9,000

Dividend for Common stockholders = $22,000 - $9,000

Dividend for Common stockholders = $13,000

Preferred dividend is an obligation like interest payment, it has to pay even there is a net loss for the year. From total dividend first pay the preferred dividend and the remaining balance will be shared between the common stockholders.