Outstanding stock of the Zone Corporation included 20,000 shares of $5 par common stock and 5,000 shares of 6%, $10 par noncumulative preferred stock. In 2017, Zone declared and paid dividends of $2,000. In 2018, Zone declared and paid dividends of $6,000. How much of the 2018 dividend was distributed to preferred shareholders?

Question

Quizplus · Accepted Answer

The preferred shareholders are entitled to a fixed dividend of 6% on the par value of their stock, which is $10 per share. Therefore, the total amount of dividends that must be paid to the preferred shareholders is:
5,000 preferred shares x $10 par value x 6% dividend rate = $3,000
Since $6,000 in dividends was paid in 2018, and $3,000 of that was paid to the preferred shareholders, the remaining $3,000 was paid to the common shareholders. Therefore, the answer is C, $3,000.

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