A company has outstanding 12.00 million shares of $5.00 par common stock and 2.4

Question

A company has outstanding 12.00 million shares of $5.00 par common stock and 2.4 million shares of $5.40 par preferred stock. The preferred stock has an 12% dividend rate. The company declares $440,000 in total dividends for the year. Which of the following is correct if the preferred stockholders only have a current dividend preference?

A) Preferred stockholders will receive the entire $440,000, and they must also be paid $208,000 before the end of the current accounting period. Common stockholders will receive nothing.

B) Preferred stockholders will receive the entire $440,000, and they must also be paid $208,000 sometime in the future before common stockholders will receive anything.

C) Preferred stockholders will receive the entire $440,000, but will receive nothing more relating to this dividend declaration. Common stockholders will receive nothing.

D) Preferred stockholders will receive $52,800 or 12% of the total dividends. Common stockholders will receive the remaining $387,200.

A company has outstanding 12.00 million shares of $5.00 par common stock and 2.4 million shares of $5.40 par preferred stock. The preferred stock has an 12% dividend rate. The company declares $440,000 in total dividends for the year. Which of the following is correct if the preferred stockholders only have a current dividend preference?

Explanation / Answer

Preferred dividend =Par value *shares outsanding *rate of dividend

     = 5.4*2,400,000*.12

    = 1,555,200

Since preferred holders have preference over common stockholders entire dividend of $440000 will be preferred stockholders

ALso,preferred stock are non cummulative therefore Dividend not paid will not be carried forward to next year .

correct option is "C"-Preferred stockholders will receive the entire $440,000, but will receive nothing more relating to this dividend declaration. Common stockholders will receive nothing

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