Nottebart Corporation has outstanding 11,000 shares of $110 par value, 6% prefer

Question

Nottebart Corporation has outstanding 11,000 shares of $110 par value, 6% preferred stock and 65,000 shares of $11 par value common stock. The preferred stock was issued in January 2014, and no dividends were declared in 2014 or 2015. In 2016, Nottebart declares a cash dividend of $321,000. Assume that the preferred are non cumulative. How much dividend will the preferred stockholders receive? How much dividend will the common stockholders receive? Assume that the preferred are cumulative. How much dividend will the preferred stockholders receive? How much dividend will the common stockholders receive?

Explanation / Answer

(A) Non cumulative Preferred stock that means from the total cash dividend of 321,000 for 2016 only dividend for 2016 will be paid and no arrear dividend will be paid

Preferred stock dividend = 6% * number of shares * Par value = 6 % * 11,000 * 110 = $72,600

Remaing dividend = 321,000 - 72,600 = $248,400 Will be paid to common stock holders

(B) Comulative preferred shares means the dividend that was arrear will be paid first and then the dividend of the current year will be year

Dividend Arrear

2014 = Preferred dividend= 6% * number of shares * Par value = 6 % * 11,000 * 110 = $72,600

2015 = Preferred dividend= 6% * number of shares * Par value = 6 % * 11,000 * 110 = $72,600

Total dividend in arrear = $72,600 + $72,600 = $145,200

Preferred dividend current year = 2016 = 6% * number of shares * Par value = 6 % * 11,000 * 110 = $72,600

Total dividend paid to Preferred stockholders = $145,200 + $72,600 = $217,800

Remaing dividend = 321,000 - 217,800 = $103,200 Will be paid to common stock holders.

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