The Surf's Up issues 1,000 shares of 6%,$100 par value preferred stock at the beginning of 2017.All remaining shares are common stock.The company was not able to pay dividends in 2017,but plans to pay dividends of $18,000 in 2018.Assuming the preferred stock is noncumulative,how much of the $18,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders in 2018?

Question

Quizplus · Accepted Answer

Since the preferred stock is noncumulative, any unpaid dividends from last year do not accrue. Therefore, the preferred stockholders are only entitled to the dividends for the current year. The total dividend payout for the company in 2018 is $18,000. Since the preferred stock has a fixed dividend rate of 6%, the total dividend payout to the preferred stockholders is 6% x 1,000 shares x $100 par value = $6,000. The remaining $12,000 would be paid to the common stockholders. Therefore, the answer is choice A.

The Surf's Up Issues 1,000 Shares of 6%,$100 Par Value