Out of Africa,a multi-national corporation had a very successful year.The board of directors declared and paid a cash dividend of $50,000.The prior year,Out of Africa did not pay dividends on its 400 shares of cumulative,8%,$100 par,preferred stock.How much of the cash dividend was paid to the COMMON shareholders?
A)$50,000
B)$49,992
C)$46,800
D)$43,600

Question

Quizplus · Accepted Answer

First, we need to calculate the amount of dividends that must be paid to the preferred shareholders. The preferred shares are cumulative, meaning that any missed dividends must be paid before any dividends can be paid to the common shareholders.

The preferred dividend amount can be calculated as follows: 
Preferred dividend amount = (400 shares) x ($100 par value per share) x (8% dividend rate) = $32,000

Since the company did not pay any dividends on the preferred shares in the prior year, it must pay these accumulated dividends first.

After paying the preferred dividend of $32,000, there is only $18,000 left for the common shareholders.

Therefore, the amount of the cash dividend paid to the common shareholders is $18,000 or ($50,000 - $32,000) which is answer choice D.

Out of Africa,a Multi-National Corporation Had a Very Successful Year