Sweet Company’s outstanding stock consists of 1,000 shares of noncumulative 5% preferred stock with a $100 par value and 10,000 shares of common stock with a $10 par value. During the first three years of operation, the corporation declared and paid the following total cash dividends.
Dividend Declared: Year 1 - $2,000, Year 2 - $6,000, Year 3 - $32,000.
The total amount of dividends paid to preferred and common shareholders over the three-year period is?

preferred stockholders received $15,000 during the first 3 years

common shareholders received $25,000 in dividends during the third year.

Explanation:

preferred stock = 1,000 shares x $100 par value x 5% = $5,000

common stock = 10,000 shares at $10 par value

dividends declared and paid during the first 3 years:

year       dividends

1               $2,000

2              $6,000

3            $32,000

preferred stockholders should have received $5,000 per year x 3 years = $15,000. Preferred stockholders must be paid first, and their payment is fixed. If the dividends are not enough to pay the total amount, the remaining amount should be paid next year.

common shareholders received $32,000 - $7,000 = $25,000 in dividends during the third year.

$12,000 preferred; $28,000 common.

Explanation:

Preferred stock calculations:

1,000 x $100 x 5% = $5,000 paid each year

Year 1 = 2,000

Year 2 = 5,000

Year 3 = 5,000

totaling $12,000 preferred stock paid

Common stock gets what is left AFTER preferred stock is paid out each year

Year 1 = 0

Year 2 = 1,000 (6,000-5,000)

Year 3 = 27,000 (32,000-5,000)

totaling $28,000 common stock paid

Hence the answer is $12,000 preferred; $28,000 common.

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