Question

At the beginning of 20X1, a company issues 100,000 shares of 4%, $10 par value, cumulative preferred stock. All remaining shares outstanding are common stock. The company does not pay any dividends in 20X1, but pays dividends of $100,000 at the end of 20X2. How much of the dividend will be paid to common stockholders in 20X2?

a. $20,000.
B. $100,000.
C. $80,000.
D. $60,000.

Answer 1

a. $20,000.

Step-by-step explanation:

The computation of the dividend that will be paid to common stockholders in 20X2 is shown below:

= $100,000 - ($100,000 × 10 × 4% × 2 years)

= $100,000 - $80,000

= $20,000

Hence, the dividend that will be paid to common stockholders in 20X2 is $20,000

Therefore the option a is correct