Jackie Company began operations on January 1, 2012. The company has the following items included...

Question:

Jackie Company began operations on January 1, 2012. The company has the following items included in the stockholders' equity section of its balance sheet on each of the years 2012, 2013 and 2014.

8% Cumulative Preferred Stock, $100 par, 100,000 shares authorized, 25,000 shares issued and outstanding $2,500,000
Common Stock, $3 par, 500,000 shares authorized; 150,000 shares issued and outstanding 450,000

Total dividends declared and paid during 2012, 2013 and 2014 were $170,000, $210,000 and $240,000 respectively.

Determine the total dividends paid to common stockholders in 2014.

What Are Cumulative Dividends:

It is often the case that preferred shares have the right to Cumulative Dividends. Cumulative Dividends imply that a company must firstly pay any undeclared dividends to preferred shareholders from prior periods before paying out a common dividend.

Answer and Explanation:

Annual preferred dividend = 0.08*100*25,000

=$200,000

Dividends in arrears = Total 2012 and 2013 distributions - annual dividend * 2

=170,000+210,000 -200,000*2

=$20,000

Common dividend = 2014 distribution = Preferred dividend - dividends in arrears

=240,000-200,000-20,000

=$20,000

The answer is thus $20,000.


Learn more about this topic:

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What Are Dividends? - Investing in Stocks

from Business Law Textbook

Chapter 22 / Lesson 11
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