Outstanding stock of the Abel Corporation included 20,000 shares of $5 par common stock and 10,000 shares of 5%, $10 par noncumulative preferred stock. In 2009, Abel declared and paid dividends of $4,000. In 2010, Abel declared and paid dividends of $12,000. How much of the 2010 dividend was distributed to preferred shareholders?

Question

Quizplus · Accepted Answer

First, we need to determine how much of the total dividends in both years were paid to preferred shareholders. In 2009, the total dividends declared and paid were $4,000, and since the preferred stock is noncumulative, none of that amount went to preferred shareholders. In 2010, the total dividends declared and paid were $12,000, and the preferred stock is entitled to receive 5% of its $10 par value per year, or $0.50 per share. The preferred stock has 10,000 shares outstanding, so the total amount due to preferred shareholders each year is $0.50 x 10,000 = $5,000. Therefore, the preferred shareholders received $5,000 of the total $12,000 dividend in 2010, leaving $7,000 for the common shareholders.

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