Question

Liberty, inc. has 2,500 shares of 4%, $50 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at december 31, 2014, and december 31, 2015. the board of directors declared and paid a $3,000 dividend in 2014. in 2015, $18,000 of dividends are declared and paid. what are the dividends received by the preferred and common shareholders in 2015?

a. preferred: $5,000 common: $13,000
b. preferred: $7,000 common: $11,000
c. preferred: $11,000 common: $7,000
d. preferred: $9,000 common: $9,000

Answer 1

Dividend to be paid to Preference shareholders in 2014= No of Preference shares*par value per share*Percentage of Shares

=2500*50*4%

=$5000

Dividends declared duing 2014=$3000, Thus Preference share holders need to be paid $2000 , in 2015, as preference shares are cumulative in nature.

Dividend to pe paid to Preference shareholders in 2015= $5000+$2000

=$7000.

Dividend to be paid to common share holders= $18000-$7000

=$11000

Thus B will be the answer.