# The shareholders' equity of Absolut Corporation includes $200,000 of$1 par common stock and...

## Question:

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?

## Cash Dividends:

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.

#### 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 