The shareholders' equity of Red Corporation includes $200,000 of $1 par common stock and $400,000 par of 6% cumulative preferred stock.

The board of directors of Red declared cash dividends of $50,000 in 2021 after paying $20,000 cash dividends in 2020 and $40,000 in 2019.

What is the amount of dividends common shareholders will receive in 2021?

a. $18,000.

b. $22,000.

c. $26,000.

b. 22,000

Explanation:

The computation of amount of dividends common shareholders is shown below:-

Amount of annual preferred stock dividend that preferred stockholders are supposed to get.

= $400,000 par value * 6% = $24,000

Total Cash Paid to Paid to Dividends in Arrears at

Dividend paid Preferred Common Year end

2011 $40,000 $24,000 $16,000

2012 $20,000 $20,000 $4,000

2013 $50,000 $28,000 $22,000

Total $110,000 $72,000 $38,000

Amount of Dividend Common Shareholders will receive in 2013 = $ 22,000

This is because, out of $ 50,000 dividend declared, $ 28000 will be for preferred stockholders ($24000 annual + $4000 arrears)