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

The preferred stock is noncumulative, so the dividends are not paid in arrears. Therefore, the preferred stockholders will receive $40,000 (5,000 shares x $8 dividend per share) in dividends in 2012, and the common stockholders will receive $60,000 ($100,000 - $40,000).

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