Colson Inc. declared a $240,000 cash dividend. It currently has 9,000 shares of 7%, $100 par value cumulative preferred stock outstanding. It is one year in arrears on its preferred stock.

How much cash will Colson distribute to the common stockholders?

a. $114,000. b. $126,000. c. $177,000. d. None.

Option (a) $114,000

Explanation:

Data provided in the question:

Dividend declared = $240,000

Shares outstanding = 9,000

Interest = 7%

Now,

Value of share = $100 * 9,000

= $900,000

Dividend to Preference Stock Holders Arrears = 7% of Value of share

= 0.07 * $900,000

= $63,000

Dividend to Preference Stock Holders = $63,000

Therefore,

Dividend to Common Stock Holders

= $240,000 - $63,000 - $63,000

= $144,000

Option (a) $114,000