The Surf's Up issues 1,000 shares of 6%,$100 par value preferred stock at the beginning of 2011.All remaining shares are common stock.The company was not able to pay dividends in 2011,but plans to pay dividends of $18,000 in 2012.Assuming the preferred stock is noncumulative,how much of the $18,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders in 2012?

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Quizplus · Accepted Answer

The preferred stock is noncumulative, meaning that missed dividends do not accumulate and must be paid before common stockholders receive dividends. Since the company did not pay dividends in 2011, the preferred stockholders are not entitled to any unpaid dividends from that year. Therefore, all $18,000 of the dividend will be paid to the preferred stockholders, leaving nothing for the common stockholders. The preferred stockholders will receive 6% of their $100 par value shares, or $6 per share, and since the company issued 1,000 shares of preferred stock, they will receive $6,000 of the dividend.

The Surf's Up Issues 1,000 Shares of 6%,$100 Par Value