Gracey's Department Stores has $200,000 of 6% noncumulative, nonparticipating, preferred stock outstanding. Gracey's also has $600,000 of common stock outstanding. During its first year, the company paid cash dividends of $30,000. This dividend should be distributed as follows:

Question

Quizplus · Accepted Answer

The preferred stock is noncumulative, which means that any unpaid dividends in a previous year do not carry over to be paid in a future year. Therefore, the $30,000 dividend only needs to be distributed to the common and preferred shares outstanding for this year. The annual dividend payment for the preferred stock is $12,000 (6% * $200,000), so $12,000 should be paid to the preferred stockholders and the remaining $18,000 should be paid to the common stockholders. Therefore, the correct answer is C.

Gracey's Department Stores Has $200,000 of 6% Noncumulative, Nonparticipating, Preferred