question archive Nathan’s Athletic Apparel has 2,000 shares of 5%, $100 par value preferred stock the company issued at the beginning of 2017
Nathan’s Athletic Apparel has 2,000 shares of 5%, $100 par value preferred stock the company issued at the beginning of 2017
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Nathan’s Athletic Apparel has 2,000 shares of 5%, $100 par value preferred stock the company issued at the beginning of 2017. All remaining shares are common stock. The company was not able to pay dividends in 2017, but plans to pay dividends of $22,000 in 2018. Required: 1. & 2. Assuming the preferred stock is cumulative and noncumulative, how much of the $22,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders in 2018?
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Answer:
1. On cumulative basis:
Preference shareholders = $20,000
Common stockholders = $2,000
2. On non-cumulative basis:
Preference shareholders = $10,000
Common stockholders = $12,000
Explanation:
The computation of the dividend paid to the preferred stockholder and the common stockholder is shown below:
Preferred stockholders:
Cumulative = Dividend in 2018 + dividend in arrears in 2017
= $10,000 + $10,000
The preference shareholder dividend calculation is shown below:
= Number of shares × par value × rate
= 2,000 shares × $100 × 5%
= $10,000
Common stockholder dividend = Total dividend - cumulative preferred stockholder dividend
= $22,000 - $20,000
= $2,000
Non cumulative = Dividend in 2018
= $10,000
Common stockholder dividend = Total dividend - cumulative preferred stockholder dividend
= $22,000 - $10,000
= $12,000
