Question

Vaughn, Inc. has 9900 shares of 8%, $100 par value, cumulative preferred stock and 99000 shares of $1 par value common stock outstanding at December 31, 2020. If the board of directors declares a $79200 dividend, the

Answer 1

Number of preferred share = 9,900

Par value of 1 preferred share = $100

Dividend rate on preferred stock = 8%

Annual preferred dividend = Number of preferred share x Par value of 1 preferred share x Dividend rate on preferred stock

= 9,900 x 100 x 8%

= $79,200

If board of directors declares $79,200 dividend, the whole $79,200 dividend will be paid to preferred stockholders and no dividend will paid to common stockholder.

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