4. The stockholders\' equity section of Lemay Corporation shows the following on

Question

4. The stockholders' equity section of Lemay Corporation shows the following on December 31, 2018: Preferred stock-4%, $100 par, 5,000 shares outstanding Common stock-$10 par, 60,000 shares outstanding Paid-in capital in excess of par Retained earnings Total stockholders' equity s 500,000 600,000 200,000 9 $1419,000 Instructions Assuming that all of the company's retained earnings are to be paid out in dividends on 12/31/18 and that preferred dividends were last paid on 12/31/16, show how much the preferred and common stockholders should receive if the preferred stock is cumulative and fully participating.

Explanation / Answer

Total Retained Earnings distributed as dividend = 119000

Preferred stock dividend per share = 100*4% = 4

Total preferred stock dividend for 2 years = 4*5000*2 = 40000

Dividend received by common stock holders = 119000 - 40000 = 79000

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