Dividends were not declared by Royal Inc.in 2016.During 2017,total dividends declared amount to $20,000.There are 6,000 shares of $1 cumulative preferred shares outstanding and 10,000 common shares outstanding.The total amount of dividends payable to each class of shares in 2017 amounts to:

Question

Quizplus · Accepted Answer

Since preferred shares are cumulative, they have preference over common shares and must be paid their dividends first. As dividends were not declared in 2016, in 2017 the preferred shareholders are entitled to receive both their 2016 and 2017 dividends. The total dividends payable to preferred shareholders are calculated as follows:

$1 dividend per share x 6,000 shares x 2 (for 2016 and 2017) = $12,000

Once the preferred shareholders have received their dividends, the remaining amount can be paid to the common shareholders. Therefore, the total dividends payable to common shareholders are calculated as follows:

Total dividends declared - Preferred dividends = $20,000 - $12,000 = $8,000

Thus, the total amount of dividends payable to each class of shares in 2017 is $12,000 to preferred and $8,000 to common. Therefore, the correct choice is C.

Dividends Were Not Declared by Royal Inc