Luther Inc., has 1,000 shares of 8%, $50 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2016, and December 31, 2017. The board of directors declared and paid a $3,000 dividend in 2016. In 2017, $12,000 of dividends are declared and paid. What are the dividends received by the preferred shareholders in 2017?

The dividends received by the preferred shareholders in 2017 is $7,000

Explanation:

The computation of the preference shareholder dividend is shown below:

= Dividend declared - total preference dividend

= $12,000 - $5,000

= $7,000

where,

dividend declared = $12,000

Each year dividend = Number of shares * $ per share price * rate

= 1,000 shares * $50 * 8%

= $4,000

Since the dividend was paid on 2016 is $3,000

So, the balance would be = $4,000 - $3,000

= $1,000

So the total preferred dividend in 2017 = $4000 + $1,000 = $5,000