The outstanding stock of Zone Corporation included 20,000 shares of $5 par common stock and 5,000 shares of 6%, $10 par noncumulative preferred stock.In 2020, Zone declared and paid dividends of $2,000.In 2021, Zone declared and paid dividends of $6,000.How much of the 2021 dividend was distributed to preferred shareholders?

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Quizplus · Accepted Answer

The preferred shareholders are entitled to a 6% dividend on their $10 par value shares before any dividends are paid to common shareholders. With 5,000 shares, the total annual preferred dividend is 5,000 shares * $10 * 6% = $3,000. Since the 2021 dividend exceeds this amount, preferred shareholders receive their full $3,000 dividend, and the remainder goes to common shareholders.

The Outstanding Stock of Zone Corporation Included 20,000 Shares of $5