Sabas Company has 20,000 shares of $100 par, 2% cumulative preferred stock and 100,000 shares of $50 par common stock. The following amounts were distributed as dividends: Determine the dividends per share for preferred and common stock for the first year.

Question

Sabas Company has 20,000 shares of $100 par, 2% cumulative preferred stock and 100,000 shares of $50 par common stock. The following amounts were distributed as dividends:  Determine the dividends per share for preferred and common stock for the first year.

Quizplus · Accepted Answer

The preferred stock is cumulative, which means that if Sabas Company couldn't pay dividends in the current year, it's obligated to pay them in the future years. So, for the first year, Sabas Company has to pay the preferred stockholders a dividend of 2% of the preferred stock's par value, which is $100 per share. Therefore, the dividend per share for the preferred stock is $100 x 2% = $2.00. 
For common stock, Sabas Company paid $10,000 in dividends. To calculate the dividend per share, we need to divide the total dividends by the number of common shares outstanding: 
$10,000 / 100,000 shares = $0.10 per share. 
Thus, the correct answer is (C) $0.50 and $0.00.

Sabas Company Has 20,000 Shares of $100 Par, 2% Cumulative