Question

Oriole Company has 10,400 shares of 8%, $100 par value, cumulative preferred stock outstanding at December 31, 2022. No dividends were declared in 2020 or 2021.

If Oriole wants to pay $415,000 of dividends in 2022, what amount of dividends will common stockholders receive?

What are the Dividends allocated to common stock?

Answer 1

Dividends allocated to common stockholders is $ 1,65,400

Preferred stockholders have preference to receive dividend prior to common stockholders.
In case of cumulative preferred stockholders, dividends are also received for unpaid year.
So, in this case, dividends are paid preferred stockholders for 3 years and remaining are paid to common stockholders.
Total dividends			$   4,15,000
Less dividend paid to preferred stockholders			$   2,49,600
Dividend paid to common stockholders			$   1,65,400
Working:
Dividend to preferred stock		=	Preferred stock's Par value*Dividend rate
		=	10400*100*8%
		=	$       83,200
Dividends for 3 years		=	$       83,200	*	3
		=	$   2,49,600