Pamela Company has the following stock outstanding on December 31, 2011: (a) Pre

Question

Pamela Company has the following stock outstanding on December 31, 2011:
(a)

Preferred Stock (8 percent cumulative, $10 par, 25,000 shares authorized; 10,000 shares issued and outstanding)

$100,000



(b)

Common Stock ($7 par, 250,000 shares authorized, 120,000 shares issued and outstanding)

840,000

Pamela did not pay any dividends in 2009. In 2010, they paid total dividends of $10,000, and in 2011, they paid total dividends of $20,000. How much dividends will be paid to common stockholders in 2011?

Explanation / Answer

Preferred dividends are 100,000 *.08= 8,000 per year. In 2010 the company was able to make up 2,000 of the amounts in arrears from preferred dividends that were not paid in 2009. So in 2011 they would have paid 14,000 to the preferred shareholders (8,000 for the current year and the 6,000 in arrears from 2009). That would mean there was 6,000 left over for the common sgareholders.

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