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Preferred Stock Dividends Seashell Corporation has 25,000 shares outstanding of 8%, $10 par value, cumulative preferred stock. In 2017 and 2018, no dividends were declared on preferred stock. In 2019, Seashell had a profitable year and decided to pay dividends to stockholders of both preferred and common stock. Required: If Seashell has $200,000 available for dividends in 2019, how much could it pay to the common stockholders

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Answer: $140,000

Explanation:

Cumulative Preferred Stock are stock that the company will eventually have to pay dividends on even if they skip some years. In other words, the dividend payments will keep accumulating until paid.

The above Preferred stock are supposed to get the following dividends annually,

= 25,000 * $10 * 8%

= $20,000

Preferred stock are to get $20,000 per year in dividends.

Since they are owed for 2017 and 2018 in addition to the current year being 2019 that means they are entitled to 3 years of dividend payments.

Calculating would be,

= 20,000* 3

= $60,000

If $200,000 is available for dividends we will subtract the $60,000 first to find out how much goes to common shareholders as Preferred stock takes precedent.

= 200,000 - 60,000

= $140,000

$140,000 is the amount it could pay it's Common Shareholders.

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