Answer:
$ 1,850 Common Stockholers
Explanation:
Total Dividends to Preferred Stockholders
2,100 Shares
5,5% cumulative preferred stock outstanding
$100 Par Value
Total Preferred Dividends: 2,100 * 5,5% * $100 = $ 11.550
Each year the company has to pay to the preferred shareholders $11,550
Total Dividends to be paid by the company each year
Year 1
$ 10,000 Company Dividends
$ 10,000 Preferred Dividends
$ 1,550 Preferred Dividends to Next Period
Year 2
$ 12,500 Company Dividends
$ 1,550 Preferred Dividends Last Period
$ 10,950 Balance of Company Dividends.
$ 10,950 Preferred Dividends
$ 600 Preferred Dividends to Next Period
Year 3
$ 14,000 Company Dividends
$ 600 Preferred Dividends Last Period
$ 13,400 Balance of Company Dividends.
$ 11,550 Preferred Dividends
$ 1,850 Dividends to Common Shareholders
The Cash that the company shares with each Investor are Cash Dividends, every year that the company get profit, it decides if pay dividends or keep at the company as retained earnings, if the company decides to pay dividends, these are called Cash Dividends, which is the returns to the investors who trusted in the company.
When the company issues shares to the investors to raise funds, these are denominated as Common or Preferred Stocks, the diference between them is that Preferred Stock receives a fixed amount of dividend paid by the company and before the payment to shareholders of common stocks, who must wait until the preferred shareholders receive their part of dividends.
Then, ordinary shareholders are paid with the remaining amount of profit.
Answer:
The amount of dividends received by the common shareholders during Year 3 would be:
$1,850
Explanation:
Given:
Dividends paid:
Year 1 = $10,000
Year 2 = $12,500
Year 3 = $14,000
We are told the company had 2,100 shares of 5.5%, $100 par value preferred stock outstanding that paid a cumulative dividend.
Therefore, the preferred dividend per year will be =
(2,100 x $100) × 5.5%
= $11,550 per year
The preferred dividend is cummulative, which means that unpaid dividend would be moved over to the next year.
Thus, preferred dividend in arrears would be:
•Year 1 = $11,550 - $10,000
= $1,550
• Year 2 = $11,550+$1,550-$12,500
= $600
Preferred dividend in year 3 = $11,550+$600
= $12,150
Therefore, the amount of dividends received by the common shareholders during Year 3 would be :
$14,000 - $12,150
= $1,850
