Question

Outstanding stock of the West Corporation included 20,000 shares of $5 par common stock and 5,000 shares of 6%, $10 par non-cumulative preferred stock. In 2011, West declared and paid dividends of $2,000. In 2012, West declared and paid dividends of $6,000. How much of the 2012 dividend was distributed to preferred shareholders? Select one: A. $4,000 B. $7,000 C. $3,000 D. $6,000

Answer 1

C. $3,000

Step-by-step explanation:

To determine the amount of the 2012 dividend distributed to preferred shareholders, we need to calculate the dividend payment for each type of stock and subtract the dividend paid to common shareholders from the total dividend paid.

The preferred stock has a fixed dividend rate of 6% of its par value, which is $10 per share. So, the annual dividend per preferred share is 6% of $10, which is $0.60 per share.

The total preferred dividend payment for 2011 is calculated by multiplying the annual dividend per preferred share by the number of preferred shares:

Total preferred dividend payment for 2011 = $0.60 x 5,000 shares = $3,000

Similarly, we can calculate the total preferred dividend payment for 2012:

Total preferred dividend payment for 2012 = $0.60 x 5,000 shares = $3,000