Laura & Marty, Ltd. did not pay dividends on its 8.0%, $100 par value cumulative
ID: 2333150 • Letter: L
Question
Laura & Marty, Ltd. did not pay dividends on its 8.0%, $100 par value cumulative preferred stock during 2015 or 2016. Since 2009, 80,000 shares of this stock have been outstanding. Laura & Marty, Ltd. has been profitable in 2017 and is considering a cash dividend on its common stock that would be payable in December 2017. Required: Calculate the amount of dividends that would have to be paid on the preferred stock before a cash dividend could be paid to the common stockholders. Laura & Marty, Ltd. did not pay dividends on its 8.0%, $100 par value cumulative preferred stock during 2015 or 2016. Since 2009, 80,000 shares of this stock have been outstanding. Laura & Marty, Ltd. has been profitable in 2017 and is considering a cash dividend on its common stock that would be payable in December 2017. Required: Calculate the amount of dividends that would have to be paid on the preferred stock before a cash dividend could be paid to the common stockholders. Laura & Marty, Ltd. did not pay dividends on its 8.0%, $100 par value cumulative preferred stock during 2015 or 2016. Since 2009, 80,000 shares of this stock have been outstanding. Laura & Marty, Ltd. has been profitable in 2017 and is considering a cash dividend on its common stock that would be payable in December 2017. Required: Calculate the amount of dividends that would have to be paid on the preferred stock before a cash dividend could be paid to the common stockholders.Explanation / Answer
As from the information provided........ Preference dividend is due for 2015 and 2016 and current year 2017. Thus 2 years of arrears of dividend and 1 year of current dividend = 3 years dividend is due to prefered shareholders
= 3 * 80000 * 100 * 8% = 1,920,000
Thus an amount of 1,920,000 is payable to preferred stock before a cash dividend is paid to common stockholders.
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