Question

Bramble Corp. has 11000 shares of 5%, $100 par value, non-cumulative preferred stock and 44000 shares of $1 par value common stock outstanding at December 31, 2020. There were no dividends declared in 2019. The board of directors declares and pays a $132000 dividend in 2020. What is the amount of dividends received by the common stockholders in 2020?

$55000.

$132000.

$0.

$77000.

Answer 1

Solution:

When dividends are declared by the Board of Directors, the Dividend due to the Preferred stock holders are paid first and the balance amount is paid to the common stock holders.

As per the information given in the question we have

The board of directors declares and pays a $132,000 dividend in 2020

Number of shares of non-cumulative preferred stock = 11,000

Dividend rate = 5 %

Par value of share = $ 100

The dividend payable to preferred stock holders is calculated as follows :

= Number of shares of non-cumulative preferred stock * Dividend rate * Par value of share

= 11,000 * 5 % * $ 100

= $ 55,000

Thus the dividend payable to preferred stock holders is = $ 55,000

The amount of dividends received by the common stockholders in 2020 is the balance amount remaining after payment of dividends to preferred stock holders.

= Amount of dividend declared by the Board of directors - dividend payable to preferred stock holders

= $ 132,000 - $ 55,000

= $ 77,000

The amount of dividends received by the common stockholders in 2020 = $ 77,000

Thus the solution is Option 4 = $ 77,000