Rhubarb corporations outstanding stock is 100 shares of $100, 11% cumulative nonparticipating preferred stock, and 2000 shares of $12 par value common stock. Rhubard paid $1600 cash dividends during the year. Common stockholders received?
The answers are
A. $2500
B. $0
C. $1100
D. $500
Also, how do you figure this out?
To determine the amount of cash dividends received by common stockholders in Rhubarb Corporation, we need to understand the distribution priority between preferred and common stockholders.
Step 1: Understand the distribution priority
Preferred stockholders have priority over common stockholders in receiving dividends. In this case, the preferred stock is cumulative and nonparticipating, which means that preferred stockholders have the right to receive any missed dividends in the future but do not participate in any additional dividends beyond their fixed rate.
Step 2: Calculate the preferred stock dividend
The preferred stock dividend can be calculated by multiplying the preferred stock's face value ($100) with its fixed rate (11%).
Preferred stock dividend = Preferred stock face value * Fixed rate
Preferred stock dividend = $100 * 0.11
Therefore, the preferred stock dividend is $11 per share.
Step 3: Calculate the total preferred stock dividend
To calculate the total preferred stock dividend, multiply the preferred stock dividend per share by the number of preferred shares.
Total preferred stock dividend = Preferred stock dividend * Number of preferred shares
Total preferred stock dividend = $11 * 100
Therefore, the total preferred stock dividend is $1,100.
Step 4: Calculate the common stock dividend
The total common stock dividend can be determined by subtracting the total preferred stock dividend from the total cash dividends paid.
Total common stock dividend = Total cash dividends - Total preferred stock dividend
Total common stock dividend = $1,600 - $1,100
Therefore, the total common stock dividend is $500.
Step 5: Calculate the common stock dividend per share
To find the common stock dividend per share, divide the total common stock dividend by the number of common shares.
Common stock dividend per share = Total common stock dividend / Number of common shares
Common stock dividend per share = $500 / 2000
Therefore, the common stockholders received $0.25 per share in cash dividends.