Fargo Company\'s outstanding stock consists of 400 shares of noncumulative 5% pr

Question

Fargo Company's outstanding stock consists of 400 shares of noncumulative 5% preferred stock with a $10 par value and 3,000 shares of common stock with a $1 par value. During the first three years of operation, the corporation declared and paid the following total cash dividends.

The amount of dividends paid to preferred and common shareholders in 2015 is:

$200 preferred; $19,800 common.

$4,000 preferred; $16,000 common.

$17,000 preferred; $3,000 common.

$10,000 preferred; $10,000 common.

$20,000 preferred; $0 common.

Explanation / Answer

Given data,

Dividend in 2015 = $20000

Preferred Shares = 400

Par Value of Preferred Stock = 400 * 10 = $4000

Rate of Dividend of Prefered Stock = 5%

Dividend to preferrred Shareholders

= Par Value of Preferred Stock * Rate of Dividend

= 4000 * 5%

= $200

Dividend to Common Shareholders

= Total Dividend - Dividend to Preferred Shareholders

= $20000 - $200

= $19800

Amount of Dividend to Preferred Shareholders = $200

Amount of Dividend to Common Sharehlders = $19800

Answer is $200 Preferred; $19800 Common

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