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 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.
Answer and Explanation:
|Dividend Paid||Preferred Stock(7%)||Preference Dividends Paid||Preferred Dividends in Arrears||Common Stock Dividends Paid|
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
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from Finance 101: Principles of FinanceChapter 16 / Lesson 1