Occidental Produce Inc.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.How much dividend will be paid to the preferred stockholders?

Question

Quizplus · Accepted Answer

First, we need to calculate how much dividend will be paid to the common stockholders:

Total dividend - Dividend to preferred stockholders = Dividend to common stockholders 
$40,000 - Dividend to preferred stockholders = Dividend to common stockholders

Next, we need to calculate the dividend to preferred stockholders:

Dividend to preferred stockholders = Preferred dividend per share x Number of preferred shares

The preferred dividend per share is 4% of the $100 par value, which is $4 per share.

Dividend to preferred stockholders = $4 x 2,000 = $8,000

Now we can plug this into the equation we set up earlier:

$40,000 - $8,000 = Dividend to common stockholders

Dividend to common stockholders = $32,000

Therefore, $8,000 will be paid to the preferred stockholders.

The correct answer is C.