A company has outstanding 10 million shares of $2 par common stock and 1 million shares of $4 par preferred stock.The preferred stock has an 8% dividend rate.The company declares $300,000 in total dividends for the year.Which of the following is true if the preferred stockholders only have a current dividend preference?
A)Preferred stockholders will receive the entire $300,000,and they must also be paid $20,000 before the end of the current accounting period.Common stockholders will receive nothing.
B)Preferred stockholders will receive $24,000 or 8% of the total dividends.Common stockholders will receive the remaining $276,000.
C)Preferred stockholders will receive the entire $300,000,and they must also be paid $20,000 sometime in the future before common stockholders will receive anything.
D)Preferred stockholders will receive the entire $300,000,but will receive nothing more relating to this dividend declaration.Common stockholders will receive nothing.

Question

Quizplus · Accepted Answer

Preferred stockholders have a current dividend preference, meaning they are paid their dividends before common stockholders. The preferred dividend is $4 par x 1 million shares x 8% = $320,000. However, only $300,000 is available, so preferred stockholders receive the entire amount, and common stockholders receive nothing.

A Company Has Outstanding 10 Million Shares of $2 Par