Hopkins,Inc.has 1,000 shares of common stock and 1,000 shares of preferred stock outstanding.The preferred stock has a cumulative dividend preference.Both classes of stock have a par value of $10.The preferred stock has a dividend rate of 6 percent.Hopkins failed to pay a dividend during the prior year.During the current year,the board of directors declares dividends totaling $2,000.Accordingly,the company will distribute dividends in the amount of:
A)$2,000 to the preferred shareholders.
B)$1,000 to each class of shareholders.
C)$1,200 to the preferred shareholders and $800 to the common shareholders.
D)$1,600 to the preferred shareholders and $400 to the common shareholders.

Question

Quizplus · Accepted Answer

Current preferred dividend per share = Number of shares outstanding × Par value per share × Dividend rate
= 1,000 shares × $10 per share × 0.06 = $600
Total dividends = Common dividends + Preferred dividends
Preferred dividends = Preferred dividends in arrears + Current preferred dividend
= $600 + $600 = $1,200
Common dividends = Total dividends − Preferred dividends
= $2,000 − $1,200 = $800