ABC inc has outstanding 10 million shares at $2 par value common stock, 1 millio
ID: 2482875 • Letter: A
Question
ABC inc has outstanding 10 million shares at $2 par value common stock, 1 million shares of $4 par value preferred stock. The preferred stock has a 7% cumulative dividend preference. The company declares total dividends amounting to $50,000, $250,000 and $600,00 during 2015, 2016, and 2017 respectively. a) compute the amount of dividends to distributed to preferred and common stockholders in 2015 b) compute the amount of dividends to be distributed to preferred and common stockholders in 2016. c) compute the amount of dividends to be distributed to preferred and common stockholders in 2017.
Explanation / Answer
a) Amount of dividend to Prefernce Shareholders and Common stockholders for 2015 Amount of dividend declared 50000 Par value of Preffered stock 4000000 Cumulative % 7% amount of dividend 280000 Amount declared 50000 So , remaining amount to be accumulated 230000 Amount of dividend to Common stockholders for 2015 is NIL because to pay to Common stockholders , Preffered stockholder to be paid full dividend. b) Amount of dividend to Prefernce Shareholders and Common stockholders for 2016 Amount of dividend declared 250000 Par value of Preffered stock 4000000 Cumulative % 7% amount of dividend 280000 Amount declared 250000 So , remaining amount to be accumulated 30000 So, total amount accumulated to be paid to Preffered Stockholders before payment to Common Stockholders is (230000+30000) = 260000 Amount of dividend to Common stockholders for 2016 is NIL because to pay to Common stockholders , Preffered stockholder to be paid full dividend. c) Amount of dividend to Prefernce Shareholders and Common stockholders for 2017 Amount of dividend declared 600000 Par value of Preffered stock 4000000 Cumulative % 7% amount of dividend for 2017 280000 accumulated dividend to be paid 260000 Total Dividend paid to Preferred Shareholders 540000 Remaining Dividend to Common Stockholders 60000