Q8SE_3 - Horngren'S Financial And Managerial Accounting

Question

Question: 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

3. Assume the preferred stock is noncumulative and Copperhead passed the preferred dividend in 2016 and 2017. In 2018, the company declares cash dividends of $46,000. How much of the dividend goes to preferred stockholders? How much goes to common stockholders?

Step-by-Step Solution

Answer

Answer

Preferred dividend will be $5,040 and common dividend will be $40,960

Step 1: Basic Introduction

Common dividend is paid to the common stockholders of the corporation who are considered as the owner of the corporation. The common dividend is distributed after preferred stock distribution.

Step 2: Computation of dividend

$$\begin{gathered} \mathbf{PreferredDividend}\mathbf{=}\mathbf{NumberofShares}\mathbf{\times }\mathbf{DividendRate}\mathbf{\times }\mathbf{ValuePerShare} \\ \mathbf{=}\mathbf{7}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{6}\mathbf{\%}\mathbf{\times }\mathbf{\$}\mathbf{12} \\ \mathbf{=}\mathbf{\$}\mathbf{5}\mathbf{,}\mathbf{040} \\ \mathbf{CommonDividend}\mathbf{=}\mathbf{TotalDividend}\mathbf{-}\mathbf{PreferredDividend} \\ \mathbf{=}\mathbf{\$}\mathbf{46}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{\$}\mathbf{5}\mathbf{,}\mathbf{040} \\ \mathbf{=}\mathbf{\$}\mathbf{40}\mathbf{,}\mathbf{960} \end{gathered}$$