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24 April, 01:00

Aim, Inc., has 10,000 shares of 4%, $100 par value, noncumulative preferred stock and 40,000 shares of $1 par value common stock outstanding at December 31, 2018. There were no dividends declared in 2017. The board of directors declares and pays a $120,000 dividend in 2018. What is the amount of dividends received by the common stockholders in 2018?

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  1. 24 April, 01:23
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    Common dividends = $80,000

    Explanation:

    A non-cumulative preference shares qualifies the investors to receive a fixed amount of dividend. However, where dividends are not paid in a particulars those arrears dividend are lost and never carried forward to subsequent years for payment.

    Preference dividend = Fixed dividend % * Nominal value of shares

    A common stock on the other, entitles the shareholders to residual dividends after he claims of preference share holders have been met.

    The common dividend = Total dividends - preference dividends

    = 120,000 - (4% * 10,000 * 100)

    = 80,000
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