Question

Part c
Mastiff Corporation has 20,000 shares of $10 par common stock outstanding and 10,000 shares of $100 par, 6%
cumulative, nonparticipating preferred stock outstanding. Mastiff has not paid any dividends for the past two years.
This year, Mastiff will pay $300,000 in dividends to its stockholders.
Required
1) What portion of the dividend will be paid to preferred stockholders?
2) What portion of the dividend will be paid to common stockholders?

Answer 1

Number of preferred share = 10,000

Par value of 1 preferred share = $100

Preferred dividend rate = 6%

Preferred dividend per share = Par value of 1 preferred share x Preferred dividend rate

= 100 x 6%

= $6

Annual preferred dividend = Number of preferred share x Preferred dividend per share

= 10,000 x 6

= $60,000

Preferred dividend has not been paid for past 2 years.

Arrear of preferred dividends = Annual preferred dividend x 2

= 60,000 x 2

= $120,000

In the current year, preferred stockholder will be paid dividend for the current year and arrear of preferred dividend.

1.

Dividend paid to preferred stockholders = Arrear of preferred dividends + Currents year dividend

= 120,000 + 60,000

= $180,000

2.

Dividend paid to common stockholders = Total dividend paid - Dividend paid to preferred stockholders

= 300,000 - 180,000

= $120,000