Sunland Company has 10,000 shares of 8%, $100 par value, cumulative preferred stock outstanding at December 31, 2022. No dividends were declared in 2020 or 2021. If Sunland wants to pay $395,000 of dividends in 2022, what amount of dividends will common stockholders receive?

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Answer:

The amount of dividends received by common stockholders is $155,000

Explanation:

The dividends to preferred shareholders is computed as:

Dividends to preferred shareholders = Shares × Price per share × 8% × Number of years

where

Shares are 10,000

Price per share is $100

Number of years is 3 (2020,2021 and 2022)

Putting the values above:

= 10,000 × $100 × 8% × 3

= $80,000 × 3

= $240,000

Now,

The amount of dividends received by common stockholders is computed as:

Amount = Dividends to be paid in year 2022 -Dividends to preferred shareholders

$395,000 - $240,000

= $155,000

The payment given by a corporation to its shareholders who are entitled to it is known as dividends. The board of directors (BODs) of a firm decides on dividend quantities and distributions.

[tex]\text{The amount of dividends received by common stockholders is} =[/tex] $[tex]155,000[/tex]

[tex]\text{The dividends to preferred shareholders is computed as:}[/tex]

[tex]\text{Dividends to preferred shareholders = Shares}[/tex] × [tex]\text{Price per share}[/tex] × [tex]8[/tex]% × [tex]\text{Number of years}[/tex]

[tex]\text{Where,}[/tex]

[tex]\text{Shares} = 10,000[/tex]

[tex]\text{Price per share} = $100[/tex]

[tex]\text{Number of years} = 3[/tex]

[tex]\text{ Substituting the values to the formula:}[/tex]

[tex]= 10,000[/tex] × [tex]100[/tex] × [tex]8[/tex]%

[tex]= 80,000[/tex] × [tex]3[/tex]

[tex]= 240,000[/tex]

[tex]\text{Now,}\\\\\text{The amount of dividends received by common stockholders is computed as:}[/tex]

[tex]\text{Amount} = 395,000 - 240,000\\\\\text{Amount = 155,000}[/tex]

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