Written Inc has outstanding 600,000 shares of $2 par common stock and 120,000 shares of no par 6% preferred stock with a stated value of $5. Dividends have been paid in every year except for the past two years and the current year.
Assuming that $270,000 will be distributed, and the preferred stock is cumulative and participating, how much will the common stockholders receive?
a) $162,000
b) $132,000 <-------------------------------- answer
c) $138,000
d) $72,000
Can someone help me with this question please? it says the answer is b) $ 132,000, but yet I'm getting $162,000????
below is my work :
600,000 x 6%= 36,000
36,000 x 2 years = 72,000
270,000 - 72,000 - 36,000= $162,000
I KEEP getting $162,000 so I don't understand what I'm doing wrong. Can someone help please? show your work and thanks in advance!!!
preferred stock is cumulative and participating, You are considering the cumulative part in your solution but participating you are ignoring. In Participating any dividends beyond the prescribed rate (6%) are shared on a ratio basis between preferred shareholders and common shareholders
Common Stock Holders = 1,200,000 x 6% = 72,000
270,000 - 72,000 - 36,000 - 72,000= $90,000 Remaining to be shared
Participation rate = 90,000/1,800,000 = 5%
1,200,000 par value x 5% = $60,000 owed to common shareholders
So Total Common Shareholders will receive = 72,000 + 60,000 = 132,000
Written Inc has outstanding 600,000 shares of $2 par common stock and 120,000 shares of no...