Question
In: Accounting
The shareholders’ equity of Beau Corporation includes $2,000,000 of $1 par common stock and $4,000,000 par...
The shareholders’ equity of Beau Corporation includes $2,000,000 of $1 par common stock and $4,000,000 par value of 6% cumulative preferred stock. The board of directors of Beau declared cash dividends of $500,000 in 2019 after paying $200,000 cash dividends in each of 2018 and 2017. What is the amount of dividends common shareholders will receive in 2019?
a. $180,000.
b. $260,000.
c. $280,000.
d. $320,000.
Solutions
Expert Solution
Preferred Stock Dividend per year = $4,000,000 * 6% = $240,000
Year 2017:
Total Dividend paid in 2017 = $200,000
Preferred Dividend in arrear for Year 2017 = $240,000 - $200,000 = $40,000
Year 2018:
Total Dividend paid in 2018 = $200,000
Since, Preferred Stock are Cumulative Preferred share, they will be entitled to the Preferred Dividend in arrear in preference to the Current Preferred Dividend.
Preferred Dividend arrear for year 2017 paid in the year 2018 = $40,000
Preferred Dividend paid for the year 2018 = $160,000
Preferred Dividend in the arrear in the year 2018 = $80,000
Year 2019:
Total Dividend declared the year 2019 = $500,000
Arrear preferred Dividend paid for the year 2018 = $80,000
Preferred Dividend paid for the year 2019 = $240,000
Total Dividend attributable to Preferred shareholders = $320,000
Total amount that Common stockholders are entitled to =$500,000 - $320,000 = $180,000
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