A company has outstanding 13.50 million shares of $6.50 par common stock and 2.1

Question

A company has outstanding 13.50 million shares of $6.50 par common stock and 2.1 million shares of $5.10 par preferred stock. The preferred stock has an 11% dividend rate. The company declares $410,000 in total dividends for the year. Which of the following is true if the preferred stockholders only have a current dividend preference? a) Preferred stockholders will receive the entire $410,000, and they must also be paid $151,000 sometime in the future before common stockholders will receive anything. b) Preferred stockholders will receive the entire $410,000, but will receive nothing more relating to this dividend declaration. Common stockholders will receive nothing. c) Preferred stockholders will receive the entire $410,000, and they must also be paid $151,000 before the end of the current accounting period. Common stockholders will receive nothing. d) Preferred stockholders will receive $45,100 or 11% of the total dividends. Common stockholders will receive the remaining $364,900.

Explanation / Answer

d) Preferred stockholders will receive $45,100 or 11% of the total dividends. Common stockholders will receive the remaining $364,900.

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