Accounting question on determine total dividends of received by common stockholders

Question

I am having trouble figuring out how to determine the amount of total dividends received by common stockholders in 2012. Below is the information I have to compute it

As of December 31 the company declared the following cash dividends

2009 - $2,400

2010 - $3,100

2011 - $3,000

2012 - $4,100

Company wad organized on Jan 1, 2009. During the 1st year the company issued the following stock transactions:

5% Cumulative Preferred Stock (4,000 authorized, 2,000 issued and outstanding, $30 par)

Common Stock 0 $5 par (100,000 authorized, 50,000 issued)

Can you show me how the to calculated the amount of total dividends received by common stockholders in 2012

Thanks for your help!

Answer 1

Hi Beth,

Big picture to remember here: Common stockholders are always paid last. Preferred stockholders will get their *Preferred* rate one way or another even if it means that common stockholders get nothing for several years.

So, each year your P/S holders require their 5% dividends. Anything after that would go to the C/S, but important to remember P/S will be paid in arrears as well.

2009 Dividends:

P/s: 5% x $30 par x 2,000 shares o/s = $3000 yearly

So 2,400 was paid to P/s in 2009 and 600 will need to be paid in arrears in 2010

2010 Dividends:

P/s: $600 paid first for dividends in arrears, then the $2,500 remaining paid in 2010 (totals $3,100). Another $500 rolls forward to be paid in arrears in 2011.

2011 Dividends:

P/s: $500 paid first for dividends in arrears, then the $2,500 remaining paid in 2011 (totals $3,000). $500 rolls forward to be paid in arrears in 2012.

2012 Dividends:

P/s: $500 paid first for dividends in arrears, then the $3,000 for 2012 P/S dividends. Now that p/s holders are paid c/s gets their slice of the pie. $4,100 - 3,000 = $1,100 cash dividends paid to common stock shareholders in 2012.

hope this helped!