How much of the dividend goes to common stockholders and how much to preferred s

Question

How much of the dividend goes to common stockholders and how much to preferred stockholders?

Dividend Distribution Tescott Corporation is authorized to issue 500,000 shares of $1 common stock and 50,000 shares of preferred stock. The Preferred stock has a $50 par value, an 8% dividend, is cumulative. Tescott has 100,000 shares of common stock issued and outstanding and 5,000 shares of preferred stock issued and 4,500 outstanding. The preferred stock is two years in arrears when the board of directors declares a $300,000 dividend. How much of the dividend goes to common stockholders and how much to preferred stockholders? Preferred Stock- Common Stock

Explanation / Answer

Paid up capital No.of shares Par value Stock value Coomom stock                               100,000                                          1                                       100,000 Preferred stock                                    4,500 50                                       225,000 Dividend will be paid only to the paid up capital First, dividend will be paid to the preferred stock to clear the arrears for two years and for current year Calculation Amount Dividend on preferred stock(8%)(arrears for 2 years) 225,000*8%*2                               36,000 Dividend on preferred stock(8%)(for current year) 225,000*8%                               18,000 Total dividend on preferred stock                               54,000 Total dividend declared                             300,000 Total dividend available for common stock                             246,000

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