Question

ABC Company began operations in January, 2017, by issuing 8,600 shares of 8%, cumulative, $65 par...

ABC Company began operations in January, 2017, by issuing 8,600
shares of 8%, cumulative, $65 par value preferred stock and
16,000 shares of $5 par value common stock. ABC Company paid
$36,000 of dividends in 2017, they paid $45,000 of dividends
in 2018, they paid $50,000 of dividends in 2019, they paid
$28,000 of dividends in 2020, and they paid dividends of
$85,000 in 2021.

Calculate the amount of the $85,000 dividend paid in 2021 that
was paid to common stockholders.
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Answer #1

As preferred shares are cumulative in nature unpaid dividend will be paid in the next year.

Preference dividend = 8,600*65*8% = 44,720

2017

Total dividend = 36,000

Preference dividend = 36,000

Unpaid dividend will be = 44,720 - 36,000 = $8,720

2018

Total dividend = 45,000

Preference dividend = 45,000

Unpaid dividend will be = 44,720 - 45,000 + 8720 = 8,440

2019

Total dividend = 50,000

Preference dividend = 50,000

Unpaid dividend will be = 44,720 - 50,000 + 8,440 = 3,160

2020

Total dividend = 28,000

Preference dividend = 28,000

Unpaid dividend will be = 44,720 - 28,000 + 3,160 = 19,880

2021

Total dividend = 85,000

Preference dividend = 44,720 + 19,880 = 64,600

Common Stockholders dividend = 85,000 - 64,600 = 20,400

Therefore the correct answer of the amount paid to common shareholder is $20,400

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