Berman Inc. has 6,000 shares of 6%, $50 par value, cumulative preferred stock and 50,000 shares...

Question:

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?

Preferred Stock:

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
2013 $12,000 $18,000 $12,000 $6,000 0
2014 $72,000 $18,000 $24,000 $48,000


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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Cash Dividends & Dividend Payment

from Finance 101: Principles of Finance

Chapter 16 / Lesson 1
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