Outstanding shares of the Abel Corporation included 20,000 ordinary shares with a $5 par and 10,000 shares of 5%, $10 par noncumulative preference shares.In 2010, Abel declared and paid dividends of $4,000.In 2011, Abel declared and paid dividends of $12,000.How much of the 2011 dividend was distributed to preference shareholders?

Question

Quizplus · Accepted Answer

The total dividend paid in 2010 and 2011 is $16,000 ($4,000 in 2010 and $12,000 in 2011). 
The preferred shares have a fixed dividend of 5% on the par value of $10 per share, so the total dividend payable to preferred shareholders is $500 per year ($10 x 5%). 
Since the preferred shares are noncumulative, there are no unpaid dividends from the previous year. 
Therefore, the total amount of the 2011 dividend distributed to preference shareholders is $5,000 ($500 per share x 10,000 preference shares) and the remaining $7,000 was distributed to the ordinary shareholders. 
Thus, the correct answer is (C) $5,000.

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