Question

Marigold Corp., has 14200 shares of 4%, $100 par value, cumulative preferred stock and 59900 shares of $1 par value common stock outstanding at December 31, 2018. There were no dividends declared in 2016. The board of directors declares and pays a $117000 dividend in 2017 and in 2018. What is the amount of dividends received by the common stockholders in 2018?

0

$117000

$63600

$56800

Answer 1

Answer

If the company has declared dividend, then firstly Dividend is to be paid to Cumulative Preference Shares and then to Common Shareholders.

Cummulative Preference shares are those shares whose dividend gets cummulated if not paid i.e. If the company fails to pay dividend to Cummulative Preference shares, then their dividend gets cummulated to next year till that year in which it is paid to the shareholders.

Dividend to Cummulative Preference Shareholder's = (14,200 Shares * $100) * 4%

Dividend to Cummulative Preference Shareholder's = $56,800

Company paid no dividend in 2016 and $117,000 in 2017 and 2018, So company paid $117,000 dividend in 3 years (2016, 2017 and 2018).

So the dividend of 3 years is due to Cummulative shares,

Dividend to Cummulative shares = $56,800 * 3 = $170,400, And Company paid $117,000

So the dividend declared is not sufficient to fully pay Cummulative shares, so how can they pay Common Shareholders.

And we read earlier that we pay after paying Cummulative.

So dividend paid to Common = $0