The shareholders' equity of Absolut Corporation includes $200,000 of $1 par common stock and $400,000 of 6% cumulative preferred stock. The preferred stock was issued at par.
The board of directors of Absolut declared cash dividends of $50,000 in 2017 after paying $20,000 cash dividends in 2016 and $40,000 in 2015.
What is the amount of dividends common shareholders will receive in 2017?
Dividends are the distribution of a portion of the earnings to the stockholders of the company. When dividends are declared, a debit to the retained earnings is posted with a credit to the dividend payable account. When dividends are paid, the dividend payable account is closed out, with a credit to the cash account.
Answer and Explanation:
Dividends payable to the common stockholders in the year 2015:
6% Cumulative preferred stock capital = $400,000
Preferred dividend payable each year = $400,000 * 6% = $24,000
Dividends declared in the year 2015 = $40,000
So, the dividend paid to preferred stockholders = $24,000
The balance dividends paid to common stockholders = $40,000 - $24,000 = $16,000
No arrears in preferred dividend for the year 2015.
Dividends declared in the year 2016 = $20,000
So, the dividend paid to preferred stockholders = $20,000
Arrears in preferred dividend for the year 2016 = $24,000 - $20,000 = $4,000
No dividends paid to common stockholders for the year 2016
Dividends declared in the year 2017 = $50,000
So, the dividend paid to preferred stockholders = current year dividend + arrears in dividend = $24,000 + $4,000 = $28,000
The balance dividends paid to common stockholders for the year 2016 = $50,000 - $28,000 = $22,000
Become a member and unlock all Study Answers
Try it risk-free for 30 daysTry it risk-free
Ask a question
Our experts can answer your tough homework and study questions.Ask a question Ask a question
Learn more about this topic:
from Finance 101: Principles of FinanceChapter 16 / Lesson 1