A company's board of directors votes to declare a total cash dividend of $25,000.The company has 2,500 shares of $1 par common stock and 400 shares of 4%,$200 par preferred stock outstanding.What is the total amount that will be paid to preferred shareholders?
A)$1,000
B)$22,500
C)$400
D)$3,200
E)$25,000

Question

Quizplus · Accepted Answer

First, we need to determine how much of the total dividend will go to preferred shareholders, as they have a fixed percentage. The 400 shares of preferred stock represent 10% of the total shares outstanding (2,500 common shares + 400 preferred shares). Therefore, they are entitled to 10% of the total dividend amount: 
10% x $25,000 = $2,500. 
Next, we need to calculate the dividend payment per preferred share:
4% x $200 par value = $8 annual dividend per share.
Therefore, the total amount that will be paid to preferred shareholders is:
$8 per share x 400 shares = $3,200
The remaining $22,500 of the total dividend will go to common shareholders.

A Company's Board of Directors Votes to Declare a Total