Assume the following capital structure: Preferred stock, 6%, $50 par value, 1,000 shares issued and outstanding with dividends in arrears for three prior years (2011-2013).
Common stock, $100 par value, 2,000 shares issued and outstanding.
Total dividends declared and paid in 2014 were $50,000. How much of the 2014 dividend will be paid to the common stockholders assuming the preferred stock is noncumulative?
A) $12,000.
B) $3,000.
C)$47,000.
D)$38,000.

Question

Quizplus · Accepted Answer

Since the preferred stock is noncumulative, dividends in arrears are not paid. The preferred stockholders receive $3,000 (6% of $50,000 par value), leaving $47,000 for common stockholders.

Assume the Following Capital Structure: Preferred Stock, 6%, $50 Par