The Surf\'s Up issues 1,000 shares of 6%, $100 par value preferred stock at the

Question

The Surf's Up issues 1,000 shares of 6%, $100 par value preferred stock at the beginning of 2011. All remaining shares are common stock. The company was not able to pay dividends in 2011, but plans to pay dividends of $18,000 in 2012. Assuming the preferred stock is noncumulative, how much of the $18,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders in 2012?

A. $6,000 to preferred stockholders and $12,000 to common stockholders.
B. $18,000 to preferred stockholders and $0 to common stockholders.
C. $12,000 to preferred stockholders and $6,000 to common stockholders.
D. $9,000 to preferred stockholders and $9,000 to common stockholders.

Explanation / Answer

Answer is C

6% of $100 is $6... each share will be paid $6. There are 1000 shares for preferred, so 6000 for them and 18000-6000=12000 to common.

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