A company has outstanding 14 00 mitition shares of $6 00 par common stock and 1.

Question

A company has outstanding 14 00 mitition shares of $6 00 par common stock and 1.8 milion shares of $4.80 par preferred stock. The preferred stock has an 8% dividend rate. The company declares S380000 in total dvidends for the year Which of the following is correct if the preferred stockholders onily have a current dividend preference? O Preferred stockholders witt receive S30400 or 8% or the total dividends, common stockholders will feceve Preferred stockholders will receive me entre S380000, and tney must also be paid $4000 sometime in the O Preferred stockholders wint receive the entre $380000. and they must aiso lbe paid $4.000 before the end the remaining $349.600 future before common stockholdèrs Wil receive anything of the current accounting period. Common stockhoiders wit receive nothing Preferred stockholders will receive the entire $380000 but will receive nothing more celating to this dividend decleration. Common stockholders will receive nothing

Explanation / Answer

Correct option is D.

Reason: Preferred stockholders get preference over common stock holders in dividend distribution and firstly entire dividend of preferred stockholders is distributed and then only common stockholders get dividend. In the present case dividend declared by the company is less than the amount of dividend payable to the preferred stock so entire dividend is distributed to preferred stockholders.

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