Saturn Corporation has 10,000 shares of 10%, $75 par noncumulative preferred stock outstanding and 20,000 shares of no-par common stock outstanding. At the end of the current year, the corporation declares a dividend of $180,000. How is the dividend allocated between preferred and common stockholders?

Question

Quizplus · Accepted Answer

First, we need to calculate the total dividends payable to preferred shareholders. 
10,000 shares x $75 par value x 10% dividend rate = $75,000 
This means that preferred shareholders are entitled to receive $75,000 of the $180,000 dividend.

The remaining amount available for common shareholders is: 
$180,000 - $75,000 = $105,000

Therefore, the dividend is allocated $75,000 to preferred shareholders and $105,000 to common shareholders.

Saturn Corporation Has 10,000 Shares of 10%, $75 Par Noncumulative