The shareholders\' equity of Green Corporation includes $420,000 of $1 par commo

Question

The shareholders' equity of Green Corporation includes $420,000 of $1 par common stock and $600,000 par value of 7% cumulative preferred stock. The board of directors of Green declared cash dividends of $70,000 in 2016 after paying $40,000 cash dividends in each of 2015 and 2014. What is the amount of dividends common shareholders will receive in 2016?

$24,000.

$44,000.

$46,000.

$28,000.

The shareholders' equity of Green Corporation includes $420,000 of $1 par common stock and $600,000 par value of 7% cumulative preferred stock. The board of directors of Green declared cash dividends of $70,000 in 2016 after paying $40,000 cash dividends in each of 2015 and 2014. What is the amount of dividends common shareholders will receive in 2016?

Explanation / Answer

24,000.
[Green's common shareholders will receive dividends of $22,000 in 2016 distribution.

2014:
Preferred = $40k(a)
Common = 0

2015:
Preferred = $40k(b)
Common = 0
2016:
Preferred = $46k(c)
Common = 24k(remaining)

(a)$42,000 current preference (7% x $600,000).thus $2,000 in arrear
(b)$42,000 current preference, thus $4,000 dividends in arrears.
(c)$4,000 dividends in arrears plus the $42,000 current preference

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