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2 December, 04:04

Colson Inc. declared a $320,000 cash dividend. It currently has 12,000 shares of 7%, $100 par value cumulative preferred stock outstanding. It is one year in arrears on its preferred stock. How much cash will Colson distribute to the common stockholders

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  1. 2 December, 04:19
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    The divided for common stockholders is $152000

    Explanation:

    The preferred stock is cumulative whch means any arrears in preference dividend will be paid whenever the dividend is declared.

    The amount of yearly preference dividends is = 12000 * 100 * 0.07 = 84000

    Thus, when 320000 cash dividend is declared, 2 years (current year and arrear year) preference dividend will be paid first and the remaining will be distributed among common stock holders.

    The dividedn for common stockholders is 320000 - (84000 * 2) = $152000
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