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Dividends on Cumulative and Fully Participating Preferred Stock

The stockholders' equity section of Knott Corporation shows the following on December 31, 2007:
Preferred stock?6%, $100 par, 4,000 shares outstanding $ 400,000
Common stock?$10 par, 60,000 shares outstanding 600,000
Paid-in capital in excess of par 200,000
Retained earnings 114,000
Total stockholders' equity $1,314,000

Assuming that all of the company's retained earnings are to be paid out in dividends on 12/31/07 and that preferred dividends were last paid on 12/31/05, show how much the preferred and common stockholders should receive if the preferred stock is cumulative and fully participating.

Solution Preview

Since the preferred stock is fully participating, it would get extra dividends. First let us remove the dividends in arrears. The dividends on preferred stock were not paid for 2006. The dividend amount for the preferred stock is 400,000X6%=24,000. Total ...

Solution Summary

The solution explains how to calculate the amount of dividends received by preferred stockholders and common stockholders