Outstanding shares of the Abel Corporation included 20,000 ordinary shares with a $5 par and 10,000 shares of 4%, $10 par noncumulative preference shares. In 2013, Abel declared and paid dividends of $6,000. In 2014, Abel declared and paid dividends of $12,000. How much of the 2014 dividend was distributed to preference shareholders?

Question

Quizplus · Accepted Answer

In 2013, the total dividend paid was $6,000, and since the preference shares are noncumulative, they did not receive any dividend that year. Therefore, all $6,000 went to the ordinary shareholders.
In 2014, the total dividend paid was $12,000. The preference shares have a fixed rate of 4%, which means they are entitled to receive $400 ($10 par value x 4%) per share as a dividend. Since there are 10,000 preference shares, the total dividend payable to preference shareholders is $4,000 ($400 per share x 10,000 shares). The remaining $8,000 ($12,000 total dividend - $4,000 preference dividend) will be paid to the ordinary shareholders. Therefore, the answer is C.

Outstanding Shares of the Abel Corporation Included 20,000 Ordinary Shares