Nottingham Corporation has 10,000 shares of 10%, $75 par noncumulative preferred

Question

Nottingham Corporation has 10,000 shares of 10%, $75 par noncumulative preferred stock outstanding and 20,000 shares of no-par common stock outstanding. At the end of the current year, the corporation declares a dividend of $180,000. Allocate the dividends between preferred and common stockholders? A) The dividend is allocated $5,000 to preferred shareholders and $115,000 to common shareholders. B) The dividend is allocated $75,000 to preferred shareholders and $105,000 to common shareholders. C) The dividend is allocated $60,000 to preferred shareholders and $120,000 to common shareholders. D) The dividend is allocated $72,000 to preferred shareholders and $108,000 to common shareholders.

Explanation / Answer

Since the common stock dividend is No-Par, the preferred dividend should be paid out first and the remaining dividend will be paid out to common stockholders.

Total preferred dividend = 10,000 x $75 x 10% = $75,000

So, Equity dividend = $(180,000 - 75,000) = $105,000

Correct option (B)

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