Outstanding stock of the Core Corporation included 20,000 shares of $5 par common stock and 10,000 shares of 6%, $10 par noncumulative preferred stock.In 2020, Core declared and paid dividends of $4,000.In 2021, Core declared and paid dividends of $12,000.How much of the 2021 dividend was distributed to preferred shareholders?

Question

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First, we need to determine the dividends paid to common stockholders in each of the years. For 2020, the total dividend paid was $4,000. Since there is no information on preferred dividends in 2020, we can assume that no dividends were paid to preferred shareholders in that year. Therefore, the entire $4,000 was paid to common stockholders.

In 2021, Core declared and paid dividends of $12,000. We need to determine how much of this amount was distributed to preferred shareholders. The preferred stock has a dividend rate of 6%, and the par value of each share is $10. Therefore, the annual dividend per share is $0.60 ($10 x 6%). The total annual dividend on all preferred shares is $6,000 ($0.60 x 10,000).

To calculate the amount of the 2021 dividend paid to preferred shareholders, we can first subtract the annual dividend on preferred shares ($6,000) from the total dividend paid ($12,000):

$12,000 - $6,000 = $6,000

Therefore, $6,000 of the 2021 dividend was distributed to preferred shareholders. The rest ($12,000 - $6,000 = $6,000) was paid to common stockholders. So, the correct answer is C) $6,000.

Outstanding Stock of the Core Corporation Included 20,000 Shares of $5