Question

Watson Company has 5,000 shares of $5 par, 3% preferred stock outstanding and 25,000 shares of $2 par common stock outstanding. The preferred stock is cumulative, and no dividends have been paid for the past two years. If the company wishes to distribute $2 per share to the common stockholders, what is the total amount of dividends that must be paid in the current year? a. $50,000 b. $50,750 c. $2,250 d. $51,500

Answer 1

The options are not correct, find below correct options:

a. $ 2,250

b. $50,000

c. $50,750

d. $52,250

The correct option is D,$52,250

Step-by-step explanation:

The dividends of two years were already to preferred stockholders,in addition to the current year, makes three years of dividends for preferred stockholders.

preferred dividends for three years=5,000*$5*3%*3=$2250

current year common stock dividends=$2*25,000=$50,000

The total amount of dividends that must be paid=$50,000+$2,250=$52,250