Q8SE_1 - Horngren'S Financial And Managerial Accounting

Question

Question: Dividing cash dividends between preferred and common stock

Copperhead Trust has the following classes of stock:

Preferred Stock—6%, \(12 par value; 8,500 shares authorized, 7,000 shares issued and outstanding

Common Stock—\)0.10 par value; 2,100,000 shares authorized, 1,400,000 shares issued and outstanding

Requirements

1. Copperhead declares cash dividends of $44,000 for 2018. How much of the dividends goes to preferred stockholders? How much goes to common stockholders?

Step-by-Step Solution

Answer

Answer

Dividends to preferred stockholders is $5,040

Dividends to common stockholders is $38,960

Step 1: Basic introduction

A dividend is a type of return paid to the stockholders of the corporation for their investment in a corporation, and it usually distributed from the corporation's net profits.

Step 2: Computation of dividend

$$\begin{gathered} \mathbf{PreferredDividend}\mathbf{=}\mathbf{NumberofShares}\mathbf{\times }\mathbf{DividendRate}\mathbf{\times }\mathbf{ValuePerShare} \\ \mathbf{=}\mathbf{7}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{6}\mathbf{\%}\mathbf{\times }\mathbf{\$}\mathbf{12} \\ \mathbf{=}\mathbf{\$}\mathbf{5}\mathbf{,}\mathbf{040} \\ \mathbf{CommonDividend}\mathbf{=}\mathbf{TotalDividend}\mathbf{-}\mathbf{PreferredDividend} \\ \mathbf{=}\mathbf{\$}\mathbf{44}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{\$}\mathbf{5}\mathbf{,}\mathbf{040} \\ \mathbf{=}\mathbf{\$}\mathbf{38}\mathbf{,}\mathbf{96}\mathbf{0} \end{gathered}$$