Berman Inc. has 6,000 shares of 6%, $50 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2013, and December 31, 2014. The board of directors declared and paid an $12,000 dividend in 2013. In 2014, $72,000 of dividends are declared and paid. What are the dividends received by the common stockholders in 2014?
The term preferred stock is viewed by market participants as a hybrid of debt and equity security. It generally has no voting rights like common stock but comes with a fixed dividend payment.
Answer and Explanation:
Determine the amount distributed to each class of stockholders for this two-year-old company.
|Dividend Paid||Preferred Stock(6%,par 50)||Preference Dividends Paid||Preferred Dividends in Arrears||Common Stock|
Preferred Dividends that should be paid each year is $45,500.if dividends are available
Preferred Dividend should be paid = 6% x $50(par) x 6,000 shares
Preferred Dividend should be paid = $18,000
Preferred stock is a cumulative type so dividends not paid in prior years will be paid in the year it becomes viable.
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from Finance 101: Principles of FinanceChapter 16 / Lesson 1