Oriole Company has 14000 shares of 5%, $100 par value, cumulative preferred stock and 28000 shares of $1 par value common stock outstanding at December 31, 2017. There were no dividends declared in 2015. The board of directors declares and pays a $126000 dividend in 2016 and in 2017. What is the amount of dividends received by the common stockholders in 2017

$42,000 dividend is received by the common stockholders in 2017.

Explanation:

Preferred stockholders has an advantage that they are paid first when there is any dividend is announced. The residual dividend will be divided into the common stockholders. Any prior years due dividend and current years dividend associated with preferred share will be paid first.

As per given data

Preferred shares = 14000 shares x $100 = $1,400,000

Dividend on preferred shares = $1,400,000 x 5% = $70,000 per year

As in 2015 no dividend was declared, the dividend of $70,000 is due in respect of preferred dividend.

2016

Dividend Declared = $126,000

Preferred dividend = $70,000 x 2 = $140,000

All the dividend of $126,000 is paid to preferred stockholders there is no dividend for common stockholders in 2016 and still there is $ 14,000 due in respect of preferred dividend.

2017

Dividend Declared = $126,000

Preferred dividend = $70,000 + $14,000 = $84,000

Dividend Paid to Common stockholders = $126,000 - $84,000 = $42,000

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