When Crossett Corporation was organized in January 2018 it i

When Crossett Corporation was organized in January 2018, it immediately issued 4,000 shares of $50 par, 6 percent, cumulative preferred stock and 50,000 shares of $20 par common stock. Its earnings history is as follows: 2018, net loss of $35,000; 2019, net income of $125,000; 2020, net income of $215,000. The corporation did not pay a dividend in 2018.

Assume that the board of directors declares a $40,000 cash dividend at the end of 2019 (remember that the 2018 and 2019 preferred dividends are due). How will the dividend be divided between the preferred and common stockholders?

Distribution to Shareholders Amount Preferred Commorn Total dividend declared40,000 2018 Arrearage 2019 Preferred dividends Available for common Distributed to common Total distribution 12,000 $ 12,000 12,00012,000 64,000 16,000 $24.000 S

Solution

Distribution to Shareholders Amount Preferred Common Total Dividend Declared $40,000.00 Less : 2018 Arrears - Preferred dividend $12,000.00 $12,000.00 $0.00 Less : 2019 Preferred Dividend $12,000.00 $12,000.00 $0.00 Available to Common stockholders $16,000.00 Less : Distributed to Common stockholders $16,000.00 $16,000.00 Total Distribution $24,000.00 $16,000.00 Dividend distributed among Preferred stockholders $24,000.00 Dividend distributed among Common stockholders $16,000.00