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Assume the following shares outstanding: Preferred stock, 5%, $100 par value, noncumulative, 1,000 shares. No dividends were declared or paid in 2010 or 2011. Common stock, $1 par value, 2,000 shares. Total dividends declared in 2012 were $50,000. The total amount of dividends to which common stockholders are entitled is

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Answer:

$45,000

Explanation:

The computation of the total amount of dividend paid to the common stockholder is given below:

But before that the dividend that to be paid to preference stockholder is

= Face value × Number of shares outstanding × Dividend rate

= $100 × 1,000 shares × 5%

= $5,000

The total dividend declared is $50,000

So, the balance is to be paid to common stockholder i.e.

= $50,000 - $5,000

= $45,000

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