Hu Corp. had the following stock issued and outstanding at January 1, 2010: 50,0

Question

Hu Corp. had the following stock issued and outstanding at January 1, 2010: 50,000 shares of no-par common stock. 10,000 shares of $100 par, 3 percent, cumulative preferred stock. (Dividends are in arrears for one year, 2009.) On February 1, 2010, Hu declared a $100,000 cash dividend to be paid March 31 to shareholders of record on March 10. Required: What amount of dividends will be paid to the preferred shareholders versus the common shareholders? (Amounts to be deducted should be indicated with minus sign. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)

Explanation / Answer

Distribution to shareholder   

Preferred Common

Total dividend delcared $100000

less preferred Arrearage([10000 *$100]*3/100 *1year) ($30000) $30000 -

less: Current preferred dividend([10000 *$100]*3%*1/4[quaterly]) ($7500) $7500

Available for common $62500 - $62500

Total Dividend paid $37500 $62500

Distributed to common $62500/50000

= $1.25

Note:- In Cumulative preferred stock , any unpaid dividend in previous year, will be paid prior to common stockholder

Current preferred dividend :- Assume that dividend is paid quaterly(for 1 quarter)

=([10000 *$100]*3%*1/4[quaterly])

=$7500

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