Denson, Inc. has 10,000 shares of 5%, $100 par value, non-cumulative preferred stock and 40,000 shares of $1 par value common stock outstanding at December 31, 2017. There were no dividends declared in 2016. The board of directors declares and pays a $120,000 dividend in 2017. What is the amount of dividends received by the common stockholders in 2017?
A)$0.
B)$50,000.
C)$120,000.
D)$70,000.

Question

Quizplus · Accepted Answer

The preferred stockholders are entitled to their dividends before any dividends are paid to the common stockholders. The preferred stock has a fixed 5% dividend rate, which means they are entitled to $5 per share annually. Therefore, the total preferred dividend for 2017 is $50,000 (10,000 shares x $5 per share). The remaining $70,000 ($120,000 - $50,000) will be paid to the common stockholders. Therefore, the amount of dividends received by the common stockholders in 2017 is $70,000.