Ayayai Corp. has 2,000 shares of 7%, $100 par value preferred stock outstanding

Question

Ayayai Corp. has 2,000 shares of 7%, $100 par value preferred stock outstanding at December 31, 2017, At December 31, 2017, the company declared a $117,000 cash dividend. Determine the dividend paid to preferred stockholders and common stockholders under each of the following scenarios 1. The preferred stock is noncumulative, and the company has not missed any dividends in previous years. The dividend paid to preferred stockholders The dividend paid to common stockholders 2. The preferred stock is noncumulative, and the company did not pay a dividend in each of the two previous years. The dividend paid to preferred stockholders The dividend paid to common stockholders 3. The preferred stock is cumulative, and the company did not pay a dividend in each of the two previous years. The dividend paid to preferred stockholders The dividend paid to common stockholders

Explanation / Answer

1. The preferred stock is noncumulative, and the company has not missed any dividend in previous year.

The dividend paid to preferred stockholders = 2,000 x 100 x 7% = $14,000
The dividend paid to common stockholders = $117,000 - $14,000 = $103,000

2. The preferred stock is noncumulative, and the company did not pay a dividend in each of the two previous year.

The dividend paid to preferred stockholders = 2,000 x 100 x 7% = $14,000
The dividend paid to common stockholders = $117,000 - $14,000 = $103,000

3. The preferred stock is cumulative, and the company did not pay a dividend in each of the two previous year.

The dividend paid to preferred stockholders = 2,000 x 100 x 7% x year = $42,000
The dividend paid to common stockholders = $117,000 - $42,000 = $75,000

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