Denson, Inc. has 10,000 shares of 7%, $100 par value, non-cumulative preferred stock and 40,000 shares of $1 par value common stock outstanding at December 31, 2014. There were no dividends declared in 2013. The board of directors declares and pays a $120,000 dividend in 2014. What is the amount of dividends received by the common stockholders in 2014?
A) $0.
B) $70,000.
C) $120,000.
D) $50,000.

Question

Quizplus · Accepted Answer

The preferred stockholders receive their 7% dividend first, which is $70,000 (10,000 shares x $100 par value x 7%). Since the preferred stock is non-cumulative, they do not receive any dividends for 2013. The remaining $50,000 ($120,000 total dividend - $70,000 preferred dividend) is distributed to the common stockholders.