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?

Question

Quizplus · Accepted Answer

First, we need to calculate the total amount of dividends owed to the preferred shareholders. The preferred stock is cumulative, which means that any missed dividends from the past two years must be paid before paying dividends to common shareholders.

Total preferred dividends owed = 2 years x 10,000 shares x $6 dividend rate = $120,000

Remaining amount for common stock = $300,000 - $120,000 = $180,000

Dividends per share for preferred stock = $6 per share ($6 dividend rate x $100 par value)

Dividends per share for common stock = $180,000 / 20,000 shares = $9 per share ($10 par value)

Therefore, the answer is B, which is a dividend of $6 per preferred share and $9 per common share.

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