has outstanding 600,000 shares of $2 par common stock and 120,000 shares of no-par 6% preferred stock with a stated value of $5. Dividends have been paid in every year except the past two years and the current year. Assuming that $270,000 is distributed, and the preferred stock is cumulative and participating, how much will the common stockholders receive

Common stockholders will receive $132,000

Explanation:

Common stock = 600,000 shares * $2 par = $1,200,000

Preferred stock = 120,000 shares * $5 stated = $600,000

Common stcok dividends = 600,000 shares * $2 par * 6% = $72,000

Preferred stock dividends = 120,000 shares * $5 stated * 6% = $36,000

As the cumulative and participating, the preferred stock holders are to be paid the dividends which were not paid in the earlier years and the preferred stock holders will participate in the excess profits.

Amount to be paid to preferred stock holders = $36,000 * 3 = $108,000

Amount to be paid to common stock holders = $72,000

Excess amount after payment of dividends = $270,000 - $108,000 - $72,000 = $90,000

$90,000 has to be prorationed between preferred stock and common stock holders.

Common stock holders will receive $90,000 * $1,200,000 / $1,800,000 = $60,000

Common stockholders will receive $72,000 + $60,000 = $132,000