If 1,000 shares with a par value of $50/share,a dividend rate of 10% and redeemable for $80/share,are sold for $75/share how much dividend will the equity holders be entitled to?
A)$3,000
B)$5,000
C)$7,500
D)$8,000

Question

Quizplus · Accepted Answer

The total amount received from selling the shares is 1,000 x $75 = $75,000. 
The total par value of the shares is 1,000 x $50 = $50,000. 
Therefore, the amount of capital in excess of par value is $75,000 - $50,000 = $25,000. 
The dividend entitlement is 10% of the par value, which is 10% x $50,000 = $5,000. 
Since the shares were sold for less than their redeemable value, there is no obligation to redeem them at the higher price. 
Therefore, the dividend entitlement is based on the par value, not the redeemable value. 
Hence, the equity holders will be entitled to a dividend of $5,000.

If 1,000 Shares with a Par Value of $50/share,a Dividend