A company has outstanding 10 million shares of $2 par common shares and 1 million shares of $4 par preferred shares.The preferred shares have $0.32 dividend per share.The company declares $300,000 in total dividends for the year.Which of the following is true if the preferred shareholders have a current and cumulative dividend preference?
A)Preferred shareholders will receive the entire $300,000,and they must also be paid $20,000 before the end of the current accounting period.Common shareholders will receive nothing.
B)Preferred shareholders will receive $24,000 (8% of the total dividends).Common shareholders will receive the remaining $276,000.
C)Preferred shareholders will receive the entire $300,000,and they must also be paid the rest sometime in the future before common shareholders will receive anything.
D)Preferred shareholders will receive the entire $300,000,but will receive nothing more relating to this dividend declaration.Common shareholders will receive nothing.

Question

Quizplus · Accepted Answer

Preferred dividends: 1,000,000 * $0.32 = $320,000
What the company is paying is short of the stated preferred dividend.As its cumulative dividend preference it will have to pay the remaining ahead of paying the common shares.

A Company Has Outstanding 10 Million Shares of $2 Par