Question

16. 10.00 points Problem 17-18 Preferred stock dividends in arrears [LO17-5 a. How much is the company behind in preferred dividends? (Do not round intermediate calculations, Input your answer in dollars, not millions (e.g. $1.234.000. b. If NHC earns $14,000,000 in the coming year after taxes but payments)? Keep in mind that the coming year not round intermediate calculations. Input your answer in dollars, not millions (e O Type here to search

Answer 1

1) Preferred dividend in arrears

= annual dividend *no of preferred shares * no of years in arrear

= 9 $ * 360000shares *5 years

= 16200000

2) Arrears of preference dividend in 6th year after paying out of profits :

Profit after tax but before dividend = 14000000

Arrears of preference dividend till date = 9 $ per share*360000shares*6 years

= 19440000

Remaining arrears at the end of 6th year = Total arrears to.be paid till date - profit available to pay preference dividend

= 19440000 - 14000000

= 5440000

Hence 5440000 will still be remaining to be paid as preference dividend.

3) No, the company cannot pay to common stockholders any common stock dividend unless it pays off fully the accumulated amount of preference dividend. First preference shareholders dividend is paid off and after that if any amount of profit remains it can be used to pay to common stockholders. In the given case as seen above an amount of 5440000 still is in arrears, dividend cannot be paid to common stockholders.