Question

Gracey's Department Stores has $200,000 of 6% noncumulative, nonparticipating, preferred stock outstanding. Gracey's also has $600,000 of common stock outstanding. During its first year, the company paid cash dividends of $30,000. This dividend should be distributed as follows:__________
a) $0 preferred; $30,000 common.
b) $15,000 preferred; $15,000 common.
c) $30,000 preferred; $0 common.
d) $6,000 preferred; $24,000 common.
e) $12,000 preferred; $18,000 common.

Answer 1

Answer:

e) $12,000 preferred; $18,000 common.

Explanation:

Dividend (Preferred) = 6% * Preferred stock outstanding

= 5% * $200,000

= $12,000

Dividend common = $30,000 - $12,000

= $18,000

Hence, the Cash dividend to preferred shareholders is $12,000 and that to common shareholder is $18,000