question archive Trusper Company was organized on January 1, Year 1 and has had 1,000 shares of $200 par value, 10% cumulative preferred stock outstanding and 3,000 shares of $1 par value common stock outstanding since that time
Trusper Company was organized on January 1, Year 1 and has had 1,000 shares of $200 par value, 10% cumulative preferred stock outstanding and 3,000 shares of $1 par value common stock outstanding since that time
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Trusper Company was organized on January 1, Year 1 and has had 1,000 shares of $200 par value, 10% cumulative preferred stock outstanding and 3,000 shares of $1 par value common stock outstanding since that time. Dividends have been declared and paid as follows: $5,000 in Year 1 and $75,000 during Year 2. What is the total amount of dividends that will be paid to common stockholders during Year 2?
Common Stock: ?
I can not seem to get the correct answer. I thought it would be 50,000 but it is not. I found that number by:
1000*200*.1 = 20000
20000+5000=25000
75000*25000=50000
I also tried 25,000 incase I wan not understanding what part the question wanted and that was wrong as well. Another explinations would be very helpful, I am confused.
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Answer:
$40,000
Step-by-step explanation
Cumulative preferred stock implies that any dividends unpaid in a year would be paid next year or any other time that dividends are declared thereafter.
Preferred stock annual dividends=1000*$200*10%=$20,000
In year 1, the $5000 dividends declared would be paid to preferred stockholders while the remaining dividends of $15,000($20,000-$5000) would be paid in the year 2.
Total dividends in year 2=$75,000
total dividends paid to preferred stock in year 2=balance of year 1 dividends + dividends for year 2
total dividends to preferred stock in year 2=$15,000+$20,000=$35,000
Dividends left for common stock in year in 2=total dividends-preferred stock dividends
Dividends left for common stock in year in 2=$75,000-$35,000=$40,000
