[kelandi]

Hoping someone might be able to explain why only sometimes common shareholders receive percentage dividends equivalent to preferred shareholders? I answered one question in FAR 7 where there was 9 percent cumulative preferred stock and the 9% was also allocated to the common shareholders before the remainder of dividends paid was proportionally split. Then, another questions came along:

At December 31, Year 1 and Year 2, Carr Corp. had outstanding 4,000 shares of $100 par value 6% cumulative preferred stock and 20,000 shares of $10 par value common stock. At December 31, Year 1, dividends in arrears on the preferred stock were $12,000. Cash dividends declared in Year 2 totaled $44,000. Of the $44,000, what amounts were payable on each class of stock?

The answer is $36,000 to preferred S/H and 8,000 to common S/H.

However, this does not allocate 6% to common shareholders as the 9% was allocated in the other question. Can someone explain when to allocate the cumulative preferred percentage to common s/h and when not to?

[Ginja_CPA]

With this problem, you need to first take care of the dividends in arrears, $12,000. Once you've taken care of that you still have to pay the preferred stock dividend outstanding this year BEFORE you can pay the common stock any type of dividend. That about would be $24,000 for preferred for current year, $12,000 for div. in arrears, leaving the remaining $8,000 for C/S.

I'm not sure if that answered your question or not.

REG: 80 (02/19/16)
AUD: 83 (04/11/16)
BEC: 78 (05/28/16)
FAR: ?

[kelandi]

Right, I understand all of that. I'm just wondering why the 6% cumulative preferred stock dividend wasn't applied to the common shareholders too, like it has been in other questions?

[Allison]

Can someone help with this question? I had the same confusion:why all left $8,000 was given to CS? Why we don't multiply 6%? Thanks,

[Author]

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