The shareholders' equity of Green Corporation includes $200,000 of $1 par common stock and $400,000 par of 6% cumulative preferred stock. The board of directors of Green 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?

The amount of dividends that common shareholders will receive is $18000

Explanation:

The preferred stocks are paid before the common stock holders and the cumulative preferred stock is the stock which accumulates dividends if they are not paid fully in a certain period.

The preferred stock dividend per year is,

Dividend per year-Preferred stock = 400000 * 0.06 = 24000 per year

Preferred dividend outstanding form 2019 and 2020 equals,

Preferred stock dividend to be paid in 2021 = 24000 + 4000 + 4000 = $32000

Dividends that will be paid to common stock holders is = 50000 - 32000 = $18000

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