A corporation has 15,000 shares of 10%, $50 par cumulative preferred stock outst

Question

A corporation has 15,000 shares of 10%, $50 par cumulative preferred stock outstanding and 25,000 shares of no-par common stock outstanding. Dividends of $37,500 are in arrears. At the end of the current year, the corporation declares a dividend of $120,000.

How is the dividend allocated between preferred and common shareholders?

The dividend is allocated $7,500 to preferred shareholders and $112,500 to common shareholders

The dividend is allocated $112,500 to preferred shareholders and $7,500 to common shareholders

The dividend is allocated $120,000 to preferred shareholders and $0 to common shareholders.

The dividend is allocated $75,000 to preferred shareholders and $45,000 to common shareholders

Explanation / Answer

How is the dividend allocated between preferred and common shareholders?

The dividend is allocated $112,500 to preferred shareholders and $7,500 to common shareholders.

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