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Harbour Co. has $200,000 of no par value 4% cumulative preferred shares, and 12,000 shares of no par value common shares outstanding. In its first three years of operation, the company paid cash dividends as follows: Year 1: $8,000; Year 2: $18,000; and Year 3: $24,000.
-The amount of dividends received by the common shareholders in year 3 was:
A)$8,000
B)$12,000
C)$16,000
D)$20,000

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Harbour Co. has $200,000 of no par value 4% cumulative preferred shares, and 12,000 shares of no par value common shares outstanding. In its first three years of operation, the company paid cash dividends as follows: Year 1: $8,000; Year 2: $18,000; and Year 3: $24,000.
-The amount of dividends received by the common shareholders in year 3 was:
A)$8,000
B)$12,000
C)$16,000
D)$20,000

Quizplus · Accepted Answer

The amount of dividends paid to common shareholders is not explicitly given, but we can use the dividend payout ratio to estimate it. Let's assume a constant dividend payout ratio for simplicity. If the company paid out 50% of earnings as dividends in year 1 and 2, then the earnings per share would be $16,000 and $36,000 respectively. If the dividend payout ratio was the same in year 3, then the amount of dividends paid would be $12,000 (50% of $24,000 earnings). Therefore, the answer is C. However, if the dividend payout ratio changed over time, this calculation would not be accurate.

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