Beagle Corporation has 20,000 shares of $10 par common stock outstanding and 10,000 shares of $100 par,6% cumulative,nonparticipating preferred stock outstanding.Dividends have not been paid for the past two years.This year,a $300,000 dividend will be paid.What are the dividends per share payable to preferred and common,respectively?
A)$6;$12.
B)$18;$6.
C)$6;$6.
D)None of these answer choices is correct.

Question

Quizplus · Accepted Answer

The preferred stock is cumulative, which means that any missed dividends must be paid before common stockholders can receive dividends. Therefore, the total amount of missed dividends for the preferred stock is:
(2 years) x ($100 par value) x (6% annual dividend rate) = $12 per share

This means that before any dividends can be paid to common stockholders, $120,000 ($12 x 10,000 shares) must be paid to preferred stockholders.

After paying the $120,000 to preferred stockholders, there is $180,000 ($300,000 - $120,000) left to be distributed as dividends. The dividends per share for common stock are:
($180,000 total dividends) / (20,000 common shares outstanding) = $9 per share

However, since the preferred stock is cumulative, they are entitled to receive the $6 in missed dividends plus their current year dividend of $6, for a total of $12 per share. Therefore, the dividends per share payable to preferred and common, respectively, are $12 and $9.

So, the closest answer choice is B, with preferred dividends of $18 per share instead of $12.

Beagle Corporation Has 20,000 Shares of $10 Par Common Stock