Crane Company declared a $225000 cash dividend. It currently has 11000 shares of 4%, $100 par...

Question:

Crane Company declared a $225000 cash dividend. It currently has 11000 shares of 4%, $100 par value cumulative preferred stock outstanding.

It is one year in arrears on its preferred stock.

How much cash will Crane distribute to the common stockholders?

a. $88000

b. $181000

c. $137000

d. None.

Dividend to Common Stockholders

The dividend is distributed by the company to it's shareholders to share it's profit among it's shareholders. The dividends are distributed among the common and the preferred stockholders. The preferred stockholders have a preference over the common stock but they receive dividend at a fixed rate. And after paying the dividends to the preferred stock, remaining dividends is distributed among the common stockholders.

Answer and Explanation:


The correct answer is option c. $137,000

Step 1

Annual dividend payable to preferred stock = No. of preferred share * Face value * Dividend rate

  • No. of preferred share = 11,000 shares
  • Face value = $100
  • Dividend rate = 4%

So,

Annual Dividend of Preferred Stockholders = 11,000 share * $100 * 4% = $44,000


Step 2

The preferred stock are cumulative, so any arrears of dividend is to be paid the future. Here the arrears is of one year dividend so in current year dividend will be paid for 2 years.

Dividend payable in current year to preferred stock = Annual preferred stock dividend * 2 => $44,000 * 2 = $88,000


Step 3

Dividend paid to common stock = Total dividend - Dividend payable to preferred stock in current year

Dividend paid to common stock = $225000 - $88,000 = $137,000

So, the correct answer is option c.


Learn more about this topic:

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Cash Dividends & Dividend Payment

from Finance 101: Principles of Finance

Chapter 16 / Lesson 1
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