Warden Company reflected the following balances in the stockholders’ equity sect

Question

Warden Company reflected the following balances in the stockholders’ equity section at December 31, 2007: Common Stock, par $15, 30,000 shares outstanding; Preferred Stock, 6%, $100 par, 1,000 shares outstanding. Based on these terms, the preferred stock should receive dividends of $6 per share each year. Warden Co. has not paid any dividends since its formation on January 1, 2005. Assuming that the preferred stock is noncumulative and Warden’s pays $50,000 in dividends during the current year, how much will the common stockholders receive?

Explanation / Answer

The preferred stock is noncumulative that means Warden company will not pay the forgone dividend for the last two years i.e 2005 and 2006.

Total dividend paid this year = $50000

Dividend to preference stockholders = 1000 * 6 = $6000

Balance amount = 50000 - 6000 = $44000

Common shareholders would receive $44000 i.e 44000 / 30000 = $1.467 per share.

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