Ironworks, Inc. has declared a $21,000 cash dividend to shareholders. The company has 5,000 shares of $15-par, 7% preferred stock and 11,000 shares of $20-par common stock. The preferred stock is non-cumulative. How much will be distributed to the preferred and common stockholders on the date of payment?

Question

Quizplus · Accepted Answer

First, we need to determine how much of the dividend will go to the preferred stockholders, since they receive their dividend before common stockholders.

The preferred stock has a total par value of $15 x 5,000 = $75,000. The annual dividend rate is 7%, which means each share of preferred stock will receive a dividend of $15 x 0.07 = $1.05 per year.

Since the dividend is non-cumulative, if the company does not declare a dividend for a particular year, the preferred stockholders do not get to accumulate the dividend for future years.

In this case, the total dividend for the preferred stock is $1.05 x 5,000 = $5,250.

The remaining dividend of $21,000 - $5,250 = $15,750 will be distributed to the common stockholders.

Therefore, the answer is B) $5,250 preferred, $15,750 common.