28. On December 31, 2018, Tamber Company had 100,000 shares of $5 par value common stock...
28. On December 31, 2018, Tamber Company had 100,000 shares of $5 par value common stock and 60,000 shares of 8%, $10 par value preferred stock. Tamber declared a $150,000 dividend in the year 2018. The company did not pay any dividends in years 2016 and 2017 and they had $10,000 of unpaid preferred dividends from the year 2015. All dividends had been paid prior to the year 2015.
Assuming that the preferred dividend IS cumulative, how much will Tamber distribute to the preferred shareholders and common shareholders in 2018?
$106,000 to preferred shareholders, $44,000 to common shareholders.
$154,000 to preferred shareholders, $0 to common shareholders.
$150,000 to preferred shareholders, $0 to common
None of these answers are correct.
$144,000 to preferred shareholders, $6,000 to common shareholders
Homework Answers
Dividend per preferred stock = Par value of preferred stock x Dividend rate
= 10 x 8%
= $0.8
Annual preferred dividends = Number of preferred stock x Dividend per preferred stock
= 60,000 x 0.8
= $48,000
Total dividends declared in 2018 = $150,000
Dividends to be paid to preferred stockholder in year 2018 = Arrears of 2015 dividends + Arrears of 2016 dividends + Arrears of 2017 dividends + Dividends for the year 2018
= 10,000 + 48,000 + 48,000 + 44,000
= $150,000
Hence, preferred dividends in arrears for 2018 = 48,000 - 44,000
= $4,000
Thus, $150,000 dividends will be paid to preferred stockholder and $0 will be paid to common stockholder.
Correct option is (c)
Please do comment if you have any query, thanks.
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