The Basket Corporation has the following classes of shares: Preferred shares,$40,1,000 shares issued and outstanding,noncumulative.
Common shares,100,000 shares issued,50,000 shares outstanding.
In 20A,Basket Corporation was incorporated.It paid no dividends in its first year of existence.In 20B,the board of directors of Basket declared a total dividend of $180,000 to be paid to the holders of preferred and common shares.What was the amount of the dividend paid in 20B on each common share?
A)$1.80
B)$2.00
C)$2.80
D)$3.60

Question

Quizplus · Accepted Answer

The preferred shares are noncumulative, which means they do not have a right to receive any unpaid dividends from prior years before the common shareholders receive their dividend. Therefore, the $180,000 dividend will be paid entirely to the preferred shareholders and the remaining amount (if any) will be paid to the common shareholders.

The total amount of preferred dividends to be paid is:
$40 x 1,000 shares = $40,000

Therefore, the remaining amount to be paid to the common shareholders is:
$180,000 - $40,000 = $140,000

The number of common shares outstanding is 50,000, so the dividend per share is:
$140,000 ÷ 50,000 = $2.80 per common share.

Therefore, the correct answer is C, $2.80.

The Basket Corporation Has the Following Classes of Shares: Preferred