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17 February, 04:32

Corporation includes $200,000 of $1 par common stock and $400,000 par of 6% cumulative preferred stock. The board of directors of Ga Corporation declared cash dividends of $50,000 in 2021 after paying $20,000 cash dividends in each of 2020 and 2019. What is the amount of dividends common shareholders will receive in 2021?

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  1. 17 February, 05:39
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    The amount of dividends paid to common stockholders in 2021 $18000.

    Explanation:

    The cumulative preferred stock is the stock that accumulates dividends when the dividends are partially or not paid at all in a certain year. The dividends must be paid in the future.

    The common stock holders are paid after the preferred stockholders are paid.

    The preferred stock dividend per year = 400000 * 0.06 = $24000 per year

    As the cash dividends paid in 2019 and 2020 are $20000 each,

    The dividend outstanding on preferred stocks for 2019 is = 24000 - 20000 = $4000

    Similarly, the dividends outstanding on preferred stocks for 2020 is = 24000 - 20000 = $4000

    The total dividends outstanding at start of 2021 = 4000 + 4000 = $8000

    Preferred dividend for 2021 = 24000

    Total dividend on preferred stock = 24000 + 8000 = $32000

    The amount of dividends that common stock holders will receive in 2021 = 50000 - 32000 = $18000
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