Farley Inc. declares a $55,000 cash dividend on December 31, 2020. The required annual dividend...

Question:

Farley Inc. declares a $55,000 cash dividend on December 31, 2020. The required annual dividend on preferred stock is $10,000. Determine the allocation of the dividend to preferred and common stockholders assuming the preferred stock is cumulative and dividends are 1 year in arrears.

Cash Dividends:

A sort of monetary return distributed to the stockholders out of the current period's net earnings is described as cash dividends. Firstly, the allocation is made to the preferred stock, and after that, the value left is apportioned to common stockholders.

Answer and Explanation: 1

Allocation of cash dividends:

Particulars Amount ($)
Preferred Stock (10,000 x 2) 20,000
Common Stock (55,000 - 20,000)35,000

Hence, the cash dividends distributed to preferred stock are $20,000, and common stock is $35,000.


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Cash Dividends & Dividend Payment

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Chapter 16 / Lesson 1
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Dividends are incentives in the form of payments to shareholders of a company. Explore the different types of dividends and the standard method of payments that they occur in.


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