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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Preferred and Common Stock Dividends

Barstow Corporation has a single class of common stock and a single class of cumulative preferred stock. The cumulative preferred stock requires the corporation to pay an annual dividend of $8,000 to preferred stockholders. On January 1, 2019, Barstow’s preferred dividends were 1 year in arrears, which means that Barstow declared neither preferred nor common dividends in 2018. Dining the 3 years (2019-2021), Barstow’s board of directors determined they would be able to pay $9,500, $17,000, and $20,000, respectively.

Required:

Show how these anticipated payments will be split between preferred and common stockholders.

To determine

Concept introduction:

Stocks (Common Stock and Preferred Stock):

These are two types of the share capital of a company. Common Stock represents the Common shares issued to the shareholders and preferred stock represents the preference shares issued. Preference shares are given preference in payment of dividends and repayment of capital. Common shareholders get the inbuilt right to vote in decisions of the company and preference shareholders generally do not get this right but they may get voting rights with special provisions.

To calculate:

Cash Dividend payments.

Explanation

Cash Dividend payments are calculated as follows:

Preferred Dividend Common Dividend Total Preferred Dividend in Arrears
Year 2018 $ - $ - ...

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