# The shareholders' equity of Miami Corporation includes $680,000 of$1 par common stock and...

## Question:

The shareholders' equity of Miami Corporation includes $680,000 of$1 par common stock and $1,280,000 par value of 7% cumulative preferred stock. The company paid$68,000 cash dividends in Year 1 and another $68,000 cash dividends in Year 2. The board of directors of Miami declared cash dividends of$158,000 during Year 3.

What is the amount of the cash dividends that will be paid to the common shareholders in Year 3?

## Dividends:

Dividends represent distributions by a company to its stockholders. There is no obligation for a company to pay dividends but choosing to pass dividends may result in a loss in investor confidence especially if the company has been regularly paying it.

Dividend Paid Preferred Stock(7%) Preference Dividends Paid Preferred Dividends in Arrears Common Stock Dividends Paid
Year 1 $68,000$89,600 $68,000$21,600 0
Year 2 $68,000$89,600 $68,000$43,200 0
Year 3 $158,000$89,600 $132,800 0$25,200

Preferred Dividends that should be paid each year is $45,500 If dividends are declared before any common stock cash dividend. Preferred Dividend should be paid =$1,280,000 x 7%

Preferred Dividend should be paid = \$89,600