Sabas Company has 20,000 shares of $100 par, 2% cumulative preferred stock and 100,000 shares of $50 par common stock. The following amounts were distributed as dividends:Year 1:$10,000Year 2:45,000Year 3:90,000Determine the dividends per share for preferred and common stock for the first year.

Question

Sabas Company has 20,000 shares of $100 par, 2% cumulative preferred stock and 100,000 shares of $50 par common stock. The following amounts were distributed as dividends:Year 1:$10,000Year 2:45,000Year 3:90,000​Determine the dividends per share for preferred and common stock for the first year.

Quizplus · Accepted Answer

In the first year, the preferred stockholders are entitled to a 2% dividend on $100 par value, which is $2 per share. However, only $10,000 was distributed, which is not enough to cover the $40,000 needed for preferred dividends (20,000 shares x $2). Therefore, preferred stockholders receive $0.50 per share ($10,000 / 20,000 shares), and common stockholders receive $0.

Sabas Company Has 20,000 Shares of $100 Par, 2% Cumulative