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Colliers, Inc., has 110,000 shares of cumulative preferred stock outstanding. The preferred stock pays dividends in the amount of $2 per share, but because of cash flow problems, the company did not pay any dividends last year. The board of directors plans to pay dividends in the amount of $620,000 this year.


a. What amount will go to preferred stockholders?b. How much of the cash dividends will be available for common stockholders?

Answer :

Answer:

a. The amount that will go to preferred stockholders will be $444,000

b. The amount of the cash dividends that will be available for common stockholders is $180,000

Explanation:

a. In order to calculate the amount that will go to preferred stockholders we would have to use the following formula:

Total Dividend to be paid=(Number of Shares×Amount of dividend per share)× Number of years

=(110,000×$2)×2

=$220,000×2

=$444,000

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The amount that will go to preferred stockholders will be $444,000

b. In order to calculate the amount of the cash dividends that will be available for common stockholders we would have to use the following formula:

Total Dividend to be paid=Dividend planned to be paid by board−

Dividend paid to Cumulative preferred stockholders

=$620,000−$440,000

=$180,000

​

The amount of the cash dividends that will be available for common stockholders is $180,000

Answer:

a) Dividends to preferred stockholders = 440,000 USD

b) Dividends for common stockholders = 180,000 USD

Explanation:

Shares of Cumulative preferred Stock outstanding = 110,000 Shares  

a) Amount to preferred stockholders

Dividend to be paid = No: of shares x amount of dividend per share x Time period in years

So, we have:

No: of shares = 110,000 Shares

Amount of dividend per share = 2 USD

Time period in years = 2 years

Let's plug in the values in the formula:

Dividend to be paid = 110,000 x 2 x2

Dividend to be paid = 440,000 USD

440,000 USD amount will go to preferred stockholders.

b) Cash Dividends for Common Stockholders:

Cash dividends for common stockholders is just the difference between the number of dividends board of directors planned to pay with the dividends for the preferred stockholders.

Here's the formula:

Dividends for common stockholders = Dividends Board of Directors planned to pay - Dividends for preferred stockholders

So, we have:

Dividends Board of Directors planned to pay = 620,000 USD

Dividends for preferred stockholders = 440,000 USD

Let's plug in the values into the formula:

Dividends for common stockholders = Dividends Board of Directors planned to pay - Dividends for preferred stockholders

Dividends for common stockholders = 620,000 USD - 440,000 USD

Dividends for common stockholders = 180,000 USD

180,000 USD amount will go to common stockholders.

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