Aim, Inc., has 10,000 shares of 4%, $100 par value, noncumulative preferred stock and 40,000 shares of $1 par value common stock outstanding at December 31, 2018. There were no dividends declared in 2017. The board of directors declares and pays a $120,000 dividend in 2018. What is the amount of dividends received by the common stockholders in 2018?

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Business

Kamron Torres

14 December, 19:11

Aim, Inc., has 10,000 shares of 4%, $100 par value, noncumulative preferred stock and 40,000 shares of $1 par value common stock outstanding at December 31, 2018. There were no dividends declared in 2017. The board of directors declares and pays a $120,000 dividend in 2018. What is the amount of dividends received by the common stockholders in 2018?

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Amara Wells · Answer 1

Common dividends = $80,000

Explanation:

A non-cumulative preference shares qualifies the investors to receive a fixed amount of dividend. However, where dividends are not paid in a particulars those arrears dividend are lost and never carried forward to subsequent years for payment.

Preference dividend = Fixed dividend % * Nominal value of shares

A common stock on the other, entitles the shareholders to residual dividends after he claims of preference share holders have been met.

The common dividend = Total dividends - preference dividends

= 120,000 - (4% * 10,000 * 100)

= 80,000