Perlman Company had 100,000 shares of common stock and 20,000 shares of preferred stock at the end of the year just completed.Preferred shareholders received dividends totalling $140,000.Common shareholders received dividends totalling $210,000.If the dividend payout ratio for the year was 70%,then the net income for the year was:
A) $147,000.
B) $287,000.
C) $300,000.
D) $440,000.

Question

Quizplus · Accepted Answer

Let X be the net income for the year.

Preferred shareholders received dividends totaling $140,000. Since preferred dividends must be paid before common dividends, this means that the remaining amount of dividends available for common shareholders is:

$210,000 - $140,000 = $70,000

If the dividend payout ratio for the year was 70%, then:

($70,000 + $140,000) / X = 0.7
$210,000 / X = 0.7
X = $300,000

Therefore, the net income for the year was $300,000, which is only option D.

Perlman Company Had 100,000 Shares of Common Stock and 20,000