Answer:
The answer is : The payment to common shareholders will total $19,500
Explanation:
Because preferred share has priority to receive dividend over common shares, the amount of dividend declaration must fulfill the firm's commitment to its preferred shareholders before the residual amount may be distributed among common shareholders.
Amount of dividend needs to be paid to preferred share holders = Number of share x Par value per preferred share x % dividend = 1,000 x 10 x 5% = $500.
The residual amount of dividend declaration which will go to common shareholders = 20,000 - 500 = $19,500.
=> Thus, the answer is $19,500.
Assuming the board of directors authorizes a $20,000 dividend, the payment to common shareholders will total $19,500.
First step
Dividend paid to preferred shareholders= 1,000 x 10 x 5%
Dividend paid to preferred shareholders = $500
Second step
Payment to common shareholders=$20,000 -$500
Payment to common shareholders= $19,500
In-conclusion the payment to common shareholders will total $19,500.
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