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8 October, 17:34

Lego, Inc., issued common stock in Year 1. It issued 10,000 shares of 8%, $100 par value cumulative preferred stock for $110 per share at the beginning of Year 4. It did not pay any dividends during Year 4. In December of Year 5, it declares total dividends of $200,000. How much will the preferred stockholders of Lego receive as dividends in Year 5?

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  1. 8 October, 17:40
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    Answer: $160,000

    Explanation:

    Given the following:

    Par value = $100

    Rate of Dividend = 8% = 0.08

    Number of shares = 10,000

    Preferred Dividend is calculated thus:

    Par value * rate of Dividend * number of preferred stock

    $100 * 0.08 * 10,000 = $80,000

    Since year 4 Dividend wasn't paid

    Total year 5 Dividend equals:

    (Year 4 Dividend + year 5 dividend)

    $ (80,000 + 80,000) = $160,000
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