Pete's outstanding stock consists of (a)17,000 shares of noncumulative 7.50% preferred stock with a $10 par value and (b)42,500 shares of common stock with a $1 par value.During its first four years of operation,the corporation declared and paid the following total cash dividends.
$$\begin{array} { c c }
2010 & \$ 0 \
2011 & 28,000 \
2012 & 100,000 \
2013 & 198,000
\end{array}$$
What is the amount of dividends that the Common Stockholders receive in 2011?
A)$26,725
B)$15,250
C)$2,500
D)$0
E)$28,000

Question

Pete's outstanding stock consists of (a)17,000 shares of noncumulative 7.50% preferred stock with a $10 par value and (b)42,500 shares of common stock with a $1 par value.During its first four years of operation,the corporation declared and paid the following total cash dividends.
$$\begin{array} { c c } 
2010 & \$ 0 \
2011 & 28,000 \
2012 & 100,000 \
2013 & 198,000
\end{array}$$
What is the amount of dividends that the Common Stockholders receive in 2011?
A)$26,725
B)$15,250
C)$2,500
D)$0
E)$28,000

Quizplus · Accepted Answer

To find out the dividends that common stockholders receive in 2011, we need to subtract the dividends paid to preferred stockholders from the total dividends paid and then divide by the number of common shares outstanding.

Total dividends paid in 2011 = $17,000 x 7.50% x $10 + $26,000 = $39,250

Dividends paid to preferred stockholders = $17,000 x 7.50% x $10 = $12,750

Dividends available for common stockholders = $39,250 - $12,750 = $26,500

Dividends per common share = $26,500 / 42,500 = $0.62

Therefore, the amount of dividends that the common stockholders receive in 2011 is $0.62 per share or $26,500 in total.

The best choice is B because it is the correct answer with the correct explanation.

Pete's Outstanding Stock Consists of (A)17,000 Shares of Noncumulative 7 2010$0201128,0002012100,0002013198,000\begin{array} { c c } 2010 & \$ 0 \\2011 & 28,000 \\2012 & 100,000 \\2013 & 198,000\end{array}2010201120122013​$028,000100,000198,000​

Pete's Outstanding Stock Consists of (A)17,000 Shares of Noncumulative 7 $\begin{array} { c c } 2010 & \$ 0 \\2011 & 28,000 \\2012 & 100,000 \\2013 & 198,000\end{array}$