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Raphael Corporation’s common stock is currently selling on a stock exchange at $85 per share, and its current balance sheet shows the following stockholders’ equity section: Preferred stock—5% cumulative, $___ par value, 1,000 shares authorized, issued, and outstanding $ 50,000 Common stock—$___ par value, 4,000 shares authorized, issued, and outstanding 80,000 Retained earnings 150,000 Total stockholders' equity $ 280,000 Problem 11-5A Part 5 5.1 If two years’ preferred dividends are in arrears and the board of directors declares cash dividends of $11,500, what total amount will be paid to the preferred and to the common shareholders?

Respuesta :

Answer:

Total preference dividend = $7,500

Equity dividend = $11,500 - $7,500 = $4,000

Explanation:

Total of stockholder's equity = $280,000

Less: Retained Earnings = $150,000

Less: Equity = $80,000

Preference Capital = $50,000

Rate of preference capital = 5%

Preference Dividend if in arrears would have to be paid first in priority to Equity.

Total preference dividend in arrears = $50,000 [tex]\times[/tex] 5% = $2,500 per year

For 2 years = $2,500 [tex]\times[/tex] 2 = $5,000

In the current year also firstly preference will be paid, therefore current year preference dividend = $2,500

Total preference dividend = $7,500

Equity dividend = $11,500 - $7,500 = $4,000

chilljain33

The preferential dividend for Raphael will be $7500; whereas the dividend payout to the equity shareholders of the firm will be around $4000 for the current period.

What is payment of dividend?

A dividend is a part of profit that is paid to the existing shareholders of the company at regular intervals for investing their shares in the company. Preference stock gets the preference in payment of dividend.

It has been given that the total stockholder's equity for the firm is $280,000 and the firm has decided to retain the holdings of around $150,000 and an equity of about $50,000, so the preference stocks for the firm are computed as $50,000.

Now the preferential dividend payment rate is 5 percent and has been in arrears for the past years. So, the dividend payment for the past two years will be computed as,

[tex]\rm Previous\ Preferential\ Dividend= Preferential\ Stock\ x\ Dividend\ Rate\ x\ 2\ years \\ \\\rm Previous\ Preferential\ Dividend=50000 x\ 0.05\ x\ 2\\\\\rm Previous\ Preferential\ Dividend=\$2500\ x\ 2\\\\[/tex]

So, the preferential dividend including the current and previous two financial years will be $7500, where $5000 are for previous years and $2500 for the current year.

Now, we know that the company has declared a dividend of $11,500 and thus, the entire remaining amount of dividend will be distributed to the equity stockholders, which is computed as below,

[tex]\rm Equity\ Dividend= Total\ Dividend- Preferential\ Dividend\\\\\rm Equity\ Dividend=11500-7500\\\\\rm Equity\ Dividend= \$4000[/tex]

Hence, it has been computed that the preferred shareholders will be paid $7500 and the equity shareholders will be paid a dividend amount of $4000.

Learn more about dividend payment here:

https://brainly.com/question/4535937

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