Occidental Produce Company has 40,000 shares of common stock outstanding and 2,000 shares of preferred stock outstanding. The common stock is $0.01 par value; the preferred stock is 4% noncumulative, with $100 par value. On October 15, 2015, the company declares a total dividend payment of $40,000. What is the total amount of dividends that will be paid to the common shareholders?

Question

Quizplus · Accepted Answer

The preferred stock dividend payment can be calculated as follows:
Preferred dividend payment = (2,000 shares x $100 par value x 4% dividend rate) = $8,000
Subtracting the preferred dividend payment from the total dividend payment leaves $32,000 available for common stock dividends. The per-share dividend payment for common stock can be calculated as:
Common dividend per share = ($32,000 total dividend payment - $8,000 preferred dividend payment) / 40,000 shares outstanding = $0.60 per share
Therefore, the total amount of dividends that will be paid to the common shareholders is:
Common dividend payment = ($0.60 per share x 40,000 shares outstanding) = $24,000
So, the correct answer is B.

Occidental Produce Company Has 40,000 Shares of Common Stock Outstanding