Accounting problems?

Question:

The corporation have stock outstanding as follows: 20,000 shares of nonparticipating, cumulative preferred stock of $50 par, and 50,000 shares of $20 par common stock, what would be thethe dividend distribution for preferred shareholders in 2004.

Answer:
$2 million dollars ($2,000,000).

All you do is multiply the shares by the price per share.

You did not provide enough information to get an accurate answer. Nonparticipating means that the preferred stock does not participate in common stock dividend distributions. That means the preferred stock has a fixed dividend that may be specified as a percentage of its par value or as a dollar amount per share. The annual dividend distribution is the number of shares outstanding multiplied by the specified dividend.

The preferred stock has a preference over common stock on dividend distributions. That means that the company cannot pay q common stock dividend until it has satisfied the preferred dividend. The cumulative feature means that if the preferred dividend is not paid in one year, it accumulates and has to be paid for past years before any distributions are made to common shareholders. For example, if the preferred dividend is $2 per share and it is passed (not paid) for two years in a row, in the third year the company would have to pay $6 per share in preferred dividends before it could distribute any money to common shareholders.

Accounting problems?

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