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 2014, Zone declared and paid dividends of $2,000. In 2015, Zone declared and paid dividends of $6,000. How much of the 2015 dividend was distributed to preferred shareholders?

Question

Quizplus · Accepted Answer

First, we need to calculate the total dividends declared and paid for each year:
- 2014: $2,000
- 2015: $6,000

Then, we need to check if there are enough profits to pay the preferred dividends for each year. Since the preferred stock is noncumulative, any unpaid dividends from previous years do not accumulate and do not need to be paid.

For 2014, the preferred dividend is calculated as follows:
Preferred dividend = 5,000 shares x $10 par value x 6% dividend rate = $3,000
Since the total dividends paid in 2014 is less than $3,000, all of the $2,000 dividends paid are distributed to common shareholders.

For 2015, the preferred dividend is calculated as follows:
Preferred dividend = 5,000 shares x $10 par value x 6% dividend rate = $3,000
Since the total dividends paid in 2015 is more than $3,000, the remaining amount after paying the preferred dividend will be distributed to common shareholders:
Common dividend = $6,000 total dividends - $3,000 preferred dividends = $3,000
Therefore, $3,000 of the 2015 dividend was distributed to preferred shareholders. The answer is (C), $3,000.

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