Sweet Company's outstanding stock consists of 2,000 shares of noncumulative 4% preferred stock...

Question:

Sweet Company's outstanding stock consists of 2,000 shares of noncumulative 4% preferred stock with a $100 par value and 12,00 shares of common stock with a $10 par value. During the first three years of operation, the corporation declared and paid the following total cash dividends.

Dividends Declared
Year 1: $4,000
Year 2: $8,000
Year 3: $42,000

The amount of dividends paid to preferred and common stockholders in year 3 is?

Cash Dividend

The dividend can be paid in cash or as stock. The cash dividend is always first paid to the preferred stockholders at a fixed rate, and the remaining dividend is paid to the common stockholders. The cash dividend is paid out of the retained earnings, and ones the dividend declared it is the liability of the company to pay that to it's stockholders. The rate of dividend stock is not fixed, all the remaining dividend belongs to the common stockholders.

Answer and Explanation:


Dividend Paid in Year 3 to:

Preferred Stockholders => $8,000

Common Stockholders => $34,000

Explanation

  • Total dividend paid = $42,000
  • Dividend paid to preferred stock = No. of preferred stock * Face value * Rate of preferred dividend => 2,000 shares * $100 * 4% = $8,000
  • Dividend paid to common stock = Total dividend paid - Dividend paid to preferred stock => $42,000 - $8,000 = $34,000

Learn more about this topic:

Loading...
Cash Dividends & Dividend Payment

from Finance 101: Principles of Finance

Chapter 16 / Lesson 1
4.8K

Related to this Question

Explore our homework questions and answers library