Written, Inc. has outstanding 600,000 shares of $2 par common stock and 120,000 shares of no-par 8% preferred stock with a stated value of $5. The preferred stock is cumulative and participating. Dividends have been paid in every year except the past two years and the current year. Assuming that $366,000 will be distributed, and the preferred stock is also participating, how much will the common stockholders receive

Question

Kelvin Liu

Business

22 August, 04:54

Written, Inc. has outstanding 600,000 shares of $2 par common stock and 120,000 shares of no-par 8% preferred stock with a stated value of $5. The preferred stock is cumulative and participating. Dividends have been paid in every year except the past two years and the current year. Assuming that $366,000 will be distributed, and the preferred stock is also participating, how much will the common stockholders receive

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Answers (1)

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Jorge Baird · Answer 1

The common stockholders will receive $222,000.

Explanation:

The preferred stockholders will have the right over the common stockholders to receive the dividend payable to them.

In the question:

+ The dividend payable to preferred stockholders in one-year is calculated as: Share outstanding x Dividend percentage x stated value of preferred stock = 120,000 x 8% x 5 = $48,000;

+ The dividend payable to preferred stock is for 3 year (past two years plus current year), so total dividend payable is: 48,000 x 3 = $144,000.

So, preferred stockholder will be paid $144,000 out of $366,000 dividend distributed this year.

=> Amount of dividend distributed to common stockholders = 366,000 - 144,000 = $222,000.