Question

30. Yoder, Inc. has 150,000 shares of $10 par value common stock and 75,000 shares of $10 par value, 6%, cumulative, participating preferred stock outstanding. Dividends on the preferred stock are one year in arrears. Assuming that Yoder wishes to distribute $405,000 as dividends, the common stockholders will receive:

Answer 1

Common stockholders will receive $ 3,15,000 as dividends.

Preferred stockholder has right to receive dividends prior to common stockholders.
Cumulative participating means that preferred stockholders will also get their unpaid dividend of last years in current year.
Further, after payment of dividend to preferred stockholders, all the remaining dividends are paid to common stockholders.
So, distribution of $ 405,000 dividends will be made as under:
			Dividend	Remaining after distribution
Preferred stockholders:
Arrear in 1 year			$       45,000	$ 3,60,000
Current year			$       45,000	$ 3,15,000
Common stockholder			$   3,15,000
Total dividend distribution			$   4,05,000
Working:
Dividend to preferred stockholders		=	Number of preferred stock shares	x	Par Value of each share	x	Dividend rate
		=	75000	x	$    10.00	x	6%
		=	$       45,000