The board of directors of Petrisin Manufacturing Inc may dec

The board of directors of Petrisin Manufacturing, Inc., may declare a dividend this year but has not declared a dividend for the past two years. The corporation has 800,000 shares of SI par value common stock authorized and 200,000 shares issued and outstanding. It also has 40,000 shares of 5 percent, $10 par value cumulative preferred stock authorized, of which 40,000 shares are issued and outstanding. Compute the amount of dividends available for common and preferred shareholders if the dividend declaration is $200,000. 04 E13.15

Solution

Answer)

It is assumed that dividends are not declared for both common share or for preference share holder.

For dividends of $200000,$60000 will be paid to preferred share holders I.e (40000 share×$10×5%×3years) as the preferred shares are cumulative in nature and will have preference at time of payment of the dividends and common shares will be paid dividend only after payment of dividends of preferred shares in full.

The rest $140000 will be available for common shareholders as preferred shareholders will get fixed dividends and after that every thing belongs to the owners i.e the common share holders.