A company has 15 000 cumulative preference shares outstanding and 25 000 shares of ordinary shares outstanding. The preference shares pay an annual dividend of $5 each. Dividends of $37 500 are in arrears. At the end of the current year, the company declares a dividend of $120 000. How is the dividend allocated between preference and ordinary shareholders?
A)The dividend is allocated $112 500 to preference shareholders and $7 500 to ordinary shareholders.
B)The dividend is allocated $75 000 to preference shareholders and $45 000 to ordinary shareholders.
C)The dividend is allocated $7 500 to preference shareholders and $112 500 to ordinary shareholders.
D)The dividend is allocated $120 000 to preference shareholders and $0 to ordinary shareholders.

Question

Quizplus · Accepted Answer

The preference shareholders are entitled to $75,000 for the current year's dividend (15,000 shares x $5) and $37,500 for the arrears, totaling $112,500. The remaining $7,500 goes to ordinary shareholders.

A Company Has 15 000 Cumulative Preference Shares Outstanding and 25