A company has outstanding 10 million shares of $2 par common stock and 1 million

Question

A company has outstanding 10 million shares of $2 par common stock and 1 million shares of $4 par preferred stock. The preferred stock has an 8% dividend rate. The company declares $300,000 in total dividends for the year. Which of the following is correct if the preferred stockholders only have a current dividend preference?

A) Preferred stockholders will receive the entire $300,000, and they must also be paid $20,000 before the end of the current accounting period. Common stockholders will receive nothing.

B) Preferred stockholders will receive $24,000 or 8% of the total dividends. Common stockholders will receive the remaining $276,000.

C) Preferred stockholders will receive the entire $300,000, and they must also be paid $20,000 sometime in the future before common stockholders will receive anything.

D) Preferred stockholders will receive the entire $300,000, but will receive nothing more relating to this dividend declaration. Common stockholders will receive nothing.

Explanation / Answer

Preferred dividend = 1000000*4*8% = 320000

So preferred stocholder will received entire $300000 but not receive nothing more relating to this dividend declaration. common stockholder will received nothing.

D) Preferred stockholders will receive the entire $300,000, but will receive nothing more relating to this dividend declaration. Common stockholders will receive nothing.

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