Tommy John Company has $5,000,000 to distribute as dividends. It has $10,000,000 par value outstanding and shares...
- Tommy John Company has $5,000,000 to distribute as dividends. It has $10,000,000 par value outstanding and shares of 5% preferred stock with a par value of $5,000,000 per share. The preferred stock is cumulative and fully participating. How would the dividends be distributed to each group of shareholders if the company has not paid a dividend for 2 years?
Homework Answers
Answer:
| Total dividends to distribute | $5,000,000 |
| Preferred stock dividend [($10,000,000 x 5%) x 2 years | $1,000,000 |
| Common stock dividend [$5,000,000 - $1,000,000] | $4,000,000 |
Thus,
Preferred stock shareholders will get $1,000,000 as dividends and
Common stock shareholders will get $4,000,000 as dividends
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