A company's outstanding stock consists of (a) 17,000 shares of noncumulative 7.5% preferred stock with a $10 par value and (b) 42,500 shares of common stock with a $1 par value.During its first four years of operation,the corporation declared and paid the following total cash dividends:
-What amount of dividends will common stockholders receive in 2014?
A)$26,725
B)$15,250
C)$2,500
D)$0
E)$28,000

Question

A company's outstanding stock consists of (a) 17,000 shares of noncumulative 7.5% preferred stock with a $10 par value and (b) 42,500 shares of common stock with a $1 par value.During its first four years of operation,the corporation declared and paid the following total cash dividends: 
-What amount of dividends will common stockholders receive in 2014?
A)$26,725 
B)$15,250 
C)$2,500 
D)$0 
E)$28,000

Quizplus · Accepted Answer

In 2014, the total dividend paid was $7,000. Since the preferred stock is noncumulative, they do not receive any back dividends from previous years, and therefore they will only receive the current year's dividend of $1,275 (17,000 shares x $10 par value x 7.5%). The remaining dividend of $5,725 ($7,000 - $1,275) will be distributed among the common stockholders. To find the amount of dividends per share of common stock, divide $5,725 by the total number of common shares, which is 42,500. The result is approximately $0.135 or $0.14 per share. Therefore, the common stockholders will receive a total of $5,725 in dividends, which is answer choice B.

A Company's Outstanding Stock Consists of (A) 17,000 Shares of Noncumulative