Sweet Company's outstanding stock consists of 1,000 shares of noncumulative 5% preferred stock with a $100 par value and 10,000 shares of common stock with a $10 par value.During the first three years of operation,the corporation declared and paid the following total cash dividends. The total amount of dividends paid to preferred and common shareholders over the three-year period is:

Question

Sweet Company's outstanding stock consists of 1,000 shares of noncumulative 5% preferred stock with a $100 par value and 10,000 shares of common stock with a $10 par value.During the first three years of operation,the corporation declared and paid the following total cash dividends.  The total amount of dividends paid to preferred and common shareholders over the three-year period is:

Quizplus · Accepted Answer

To solve this problem, we need to calculate the dividends paid to each class of stock separately and then add them together to get the total amount of dividends paid.

For the preferred stock:
- The preferred stock pays a fixed dividend of 5% of its par value, which is $100 per share.
- There are 1,000 shares of preferred stock outstanding, so the total annual dividend payment to preferred shareholders is $100 x 5% x 1,000 = $5,000.
- Over the three-year period, the total dividend payment to preferred shareholders is $5,000 x 3 = $15,000.

For the common stock:
- The common stock does not have a fixed dividend, and its dividend is determined by the board of directors each year.
- The problem does not give us the specific dividend rate for the common stock in each year, so we cannot calculate the dividends paid to common shareholders for each year separately.
- However, we are given the total amount of dividends paid to both preferred and common shareholders for the three-year period, which is $40,000 ($10,000 for year 1 + $14,000 for year 2 + $16,000 for year 3).
- We already know that $15,000 of this total amount went to preferred shareholders, so the amount that went to common shareholders is $40,000 - $15,000 = $25,000.

Therefore, the total amount of dividends paid to preferred and common shareholders over the three-year period is $15,000 for preferred shareholders and $25,000 for common shareholders, making answer choice D the correct answer.

Sweet Company's Outstanding Stock Consists of 1,000 Shares of Noncumulative