Question

Question: Copperhead Trust has the following classes of stock:

Preferred Stock—6%, \(12 par value; 8,500 shares authorized, 7,000 shares issued and outstanding

Common Stock—\)0.10 par value; 2,100,000 shares authorized, 1,400,000 shares issued and outstanding

Requirements

2. Assume the preferred stock is cumulative and Copperhead passed the preferred dividend in 2016 and 2017. In 2018, the company declares cash dividends of $46,000. How much of the dividend goes to preferred stockholders? How much goes to common stockholders?

Short answer

Answer

Cumulative preference dividend will be $15,120 and common dividend will be $30,880.

Step-by-step solution

Basic Introduction

Cumulative Preference dividends are required sum of dividend payments that needs to be made by a firm to its preferred shareholders. Corporation is bound to pay cumulative dividends, even if they are paid at a later date than actual date.

Computation of dividend

2016- Preferred dividend in arrear (7,000 shares x $12 x 6%)	$5,040
2017- Preferred dividend in arrear (7,000 shares x $12 x 6%)	$5,040
2018- Preferred dividend (7,000 shares x $12 x 6%)	$5,040
2018- Common dividend ($46,000- $5,040- $5,040- $5,040)	$30,880