A corporation has 22,000 shares of 15?%, $60 par cumulative preferred stock outs

Question

A corporation has 22,000 shares of 15?%, $60 par cumulative preferred stock outstanding and 27,000 shares of no-par common stock outstanding. Dividends of $31,500 are in arrears. At the end of the current? year, the corporation declares a dividend of $234,000. How is the dividend allocated between preferred and common? stockholders?

A. The dividend is allocated $ 4,500 to preferred stockholders and $229,500 to common stockholders.

B. The dividend is allocated $198,000 to preferred stockholders and $36,000 to common stockholders.

C. The dividend is allocated $ 229,500 to preferred stockholders and $4,500 to common stockholders.

D. The dividend is allocated $ 234,000 to preferred stockholders and no dividend is paid to common stockholders.

Explanation / Answer

The answer is "C. The dividend is allocated $ 229,500 to preferred stockholders and $4,500 to common stockholders"

Dividend for preferred stockholders

= (22,000 x 60 x 15%) + 31,500 = $229,500

Dividend for common stockholders

= 234,000 - 229,500 = $4,500

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