A company plans to distribute $134,000 in dividends. It has outstanding 200,000 shares of 7% $10 par preferred stock (non-cumulative and non-participating)and 60,000 shares of $2 par common stock. How much will be distributed per share on preferred and common stock? Preferred stock Common stock

Question

Quizplus · Accepted Answer

Since the preferred stock is non-cumulative, the company is not required to pay any dividends for the years in which it does not declare dividends. Therefore, the entire $134,000 will be distributed to the preferred stockholders and the common stockholders will not receive any dividends.

The preferred stockholders will receive a dividend of 7%*$10 par value = $0.70 per share.

$0.70 per share * 200,000 preferred shares = $140,000.

Since the total amount available for distribution is only $134,000, the company will distribute the entire amount to the preferred stockholders.

Therefore, the distribution per share on preferred stock is $134,000 / 200,000 preferred shares = $0.67 per share.

The distribution per share on common stock is $0.00.

The correct answer is B.

A Company Plans to Distribute $134,000 in Dividends