A corporation has 1,000 shares of 12 percent, $60 par-value preferred stock and 20,000 shares of $2 par-value common stock outstanding. If the board of the directors declares dividends totaling $50,000, the common stockholders will receive a dividend of:

Question

Quizplus · Accepted Answer

First, we need to find out how much of the $50,000 will go towards the preferred stock dividends. Since the preferred stock has a fixed dividend rate of 12% and a par value of $60 per share, the total annual dividend payment for all 1,000 shares of preferred stock is:

12% * $60 * 1,000 = $7,200

Therefore, $7,200 of the $50,000 will go towards the preferred stock dividends, leaving $42,800 for the common stock dividends.

To calculate the common stock dividend per share, we divide the remaining amount by the number of common stock shares outstanding:

$42,800 / 20,000 = $2.14 per share

Therefore, the common stockholders will receive a dividend of $2.14 per share.

A Corporation Has 1,000 Shares of 12 Percent, $60 Par-Value