Question

Jim Corporation pays its cumulative preferred stockholders $2.40 per share. Jim has 25,000 shares of preferred...

Jim Corporation pays its cumulative preferred stockholders $2.40 per share. Jim has 25,000 shares of preferred and 65,000 shares of common. In 2015, 2016, and 2017, due to slowdowns in the economy, Jim paid no dividends. Now in 2018, the board of directors decided to pay out $630,000 in dividends.

How much of the $630,000 does each class of stock receive as dividends?

Dividends Preferred stock $ ___________

Common stock $_________

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Answer #1

Cumulative preferred dividends per year = Number of Preference shareholders * dividends per cumulative preferred stockholders

= 25000* $ 2.40

= $ 60,000

Dividends to Cumulative preferred dividends for 2015,2016,2017 and 2018 = Cumulative preferred dividends per year * Number of years

= $ 60,000 * 4

= $ 240,000

Dividends received by Common stockholders = Total Dividend - Dividends to Cumulative preferred dividends

= $ 630,000 - $ 240,000

= $ 390,000

Answer :

Dividends Preferred stock $ 240,000

Common stock $ 390,000

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