Ultimate Sportswear has $100,000 of 8% noncumulative, nonparticipating, preferred stock outstanding. Ultimate Sportswear also has $500,000 of common stock outstanding. In the company's first year of operation, no dividends were paid. During the second year, the company paid cash dividends of $30,000. This dividend should be distributed as follows:

Question

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The preferred stockholders are entitled to 8% of $100,000, which is $8,000. Since the preferred stock is noncumulative, they only receive the current year's dividend, not any missed dividends from the previous year. The remaining $22,000 goes to common stockholders.

Ultimate Sportswear Has $100,000 of 8% Noncumulative, Nonparticipating, Preferred Stock