Outstanding stock of the Core Corporation included 20,000 shares of $5 par common stock and 10,000 shares of 6%, $10 par noncumulative preferred stock. In 2017, Core declared and paid dividends of $4,000. In 2018, Core declared and paid dividends of $12,000. How much of the 2018 dividend was distributed to preferred shareholders?

Question

Quizplus · Accepted Answer

First, we need to calculate the dividend distribution for the preferred stock for each year.

For 2017: 
Preferred dividends = 10,000 shares x $10 par value x 6% = $6,000

For 2018: 
Preferred dividends = 10,000 shares x $10 par value x 6% = $6,000

Since the preferred stock is noncumulative, it means that unpaid dividends do not accumulate from one year to the next. Therefore, the preferred shareholders are entitled to only the declared and paid dividends for that year.

To calculate how much of the 2018 dividend was distributed to preferred shareholders, we simply subtract the total common stock dividend from the total dividend paid.

Total common stock dividend = 20,000 shares x $5 par value = $100,000 
Total dividend paid = $12,000

Preferred dividend = Total dividend paid - Total common stock dividend 
Preferred dividend = $12,000 - $100,000 = -$88,000

Since the preferred dividend is negative, it means that there was no dividend distribution to preferred shareholders in 2018. Therefore, the correct answer is C) None of these answers are correct.

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