Question

Ultimate Sportswear has $100,000 of 8% noncumulative,nonparticipating,preferred stock outstanding.Ultimate Sportswear also has $500,000 of common stock outstanding.In the company's first year of operation,no dividends were paid.During the second year,the company paid cash dividends of $30,000.This dividend should be distributed as follows:_________
A) $8,000 preferred;$22,000 common.
B) $16,000 preferred;$14,000 common.
C) $7,500 preferred;$22,500 common.
D) $15,000 preferred;$15,000 common.
E) $0 preferred;$30,000 common.

Answer 1

Answer:

$8,000 preferred; $22,000 common

Explanation:

Ultimate sportswear has $100,000 of 8% noncumulative stock, preferred outstanding stock

They also have $500,000 of common stock outstanding

The company made a cash dividend payment of $30,000

Therefore the preferred stock dividend and common stock dividend can be calculated as follows

Preferred stock dividend

=$100,000×8/100

= $100,000×0.08

= $8,000

Common stock dividend= $30,000-$8,000

= $22,000

Hence the preferred stock dividend is $8,000 and the common stock dividend is $22,000