A company has outstanding 11.00 mtion shares of $3.00 par common stock and 1.2 m

Question

A company has outstanding 11.00 mtion shares of $3.00 par common stock and 1.2 mlion shares of $4 20 par preferred stock. The preferred stock has an 10% dividend rate. The company declares S320000 In total avidends for the year Whlich of the folowing is correct ir the preterred stockhoiders ony have a current aividend preference? O Preferred stockholders wil receive s 32.000 or 10% orme total avoenas, common stockholders receive the remaining $260.000 O Preferred stocknoiders wil recelve the entire $320.000, ang they must aiso be paid $100 000 betore the end O Preferred ttockholders will receive tre entre $320,000, out w?receve nong more reating tons O Preterred stocknoicers witt eceive the entire $320000 and they mus aico ce paic 5100.000 scometme in of the current accounting penod. Common stockhoiders will recelve nning divtoend declaration, cCommon stocknoidert w receive hotning

Explanation / Answer

The said preference shares are not cumulative. Hence, there will be no arear dividend liability and also there will be no carry forward liability for preference dividends unpaid.

Their annual dividend claim is $504,000. ($4.20×10%×1,200,000) so all the dividends declared will go to preferred shareholders only. They cannot claim anymore as like common equity shareholders.

Hence, correct option is “Preferred stockholders will receive the entire $320,000, but will receive nothing more relating to this dividend declaration, common stockholders will receive nothing”

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