California Adventures issues 5,000 shares of 8%,$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 $100,000 in 2012.Assuming the preferred stock is noncumulative,how much of the $100,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders in 2012?

Question

Quizplus · Accepted Answer

Since the preferred stock is noncumulative, they do not have any claim to missed dividends. Therefore, the entire $100,000 dividend will be paid to the stockholders of common stock, and none of it will be paid to the preferred stockholders. The preferred stockholders will only receive their dividend of 8% on their $100 par value, which amounts to $8 per share or a total of $40,000 for all 5,000 preferred shares. Therefore, $40,000 will be paid to the preferred stockholders and the remaining $60,000 will be paid to the common stockholders.

California Adventures Issues 5,000 Shares of 8%,$100 Par Value Preferred