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16 May, 09:29

ABC Company's outstanding stock consists of 1,900 shares of noncumulative 5% preferred stock with a $100 par value and 11,900 shares of common stock with a $10 par value. During the first three years of operation, the corporation declared and paid the following total cash dividends. Dividend Declared year 1 $ 3,900 year 2 $ 9,800 year 3 $ 41,500 The total amount of dividends paid to preferred and common shareholders over the three-year period is:

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  1. 16 May, 09:31
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    Preferred dividends paid = $22,900

    Common dividends paid = $32,300

    Explanation:

    As per the data given in the question,

    Total value of preferred shares = 1,900 * $100

    = $190,000

    Annual preferred dividend = $190,000 * 5%

    = $9,500

    Until $9,500 is not paid in dividends to the preferred shareholders, dividends will not be paid to the common stockholders.

    The preferred stock is non-cumulative which indicates, in any year if no preferred dividends are paid or preferred dividends of less than $9,600 is paid in any year, the balance of preferred dividends will not be carried to next year.

    So,

    Preferred dividends paid = $3,900 + $9,500 + $9,500

    = $22,900

    Common dividends paid = ($3900 + $9,800 + $41,500) - $22,900

    = $32,300
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