Question

A company has 10,000 shares of $100 par, 6% cumulative preferred stock outstanding. If the company declares a total of $200,000 of cash dividends for the year for both its common and preferred stock and the preferred stock is two years in arrears, how much will be allocated to the (1) preferred stockholders and (2) the common stockholders?

A) (1) $60,000 and (2) $140,000
B) (1) $120,000 and $80,000.
C) (1) $180,000 and $20,000.
D) (1) $200,000 and (2) $0.
E) None of the above.

Answer 1

A) (1) $60,000 and (2) $140,000

Step-by-step explanation:

Number of preferred share = 10,000

Price of Preferred share = $100

Total value of Preference share = 10,000 x $100 = $1,000,000

(1) Preferred dividend = $1,000,000 x 6% = $60,000

Total Dividend Announced = $200,000

Dividend for common stockholders = Total Announced Dividend - Dividend for Preferred Stockholders

(2) Dividend for common stockholders = $200,000 - $60,000

Dividend for common stockholders = $140,000