Answer:
2017 preferred shareholders = $5,000
so correct option is $5,000
Explanation:
given data
Outstanding stock = 40,000 shares
common stock = $5
share = 10000 @ 5%
non-cumulative preferred stock = $10
2016 paid dividends = $4,000
2017 paid dividends = $20,000
to find out
2017 dividend was distributed to preferred shareholders
solution
we know here that preferred shares is 5%, $10 par, and there are 10,000 shares outstanding
so preferred shareholders is here
preferred shareholders = $10 × 5% × 10,000 = $5,000
and here $4,000 in dividends declared in 2016
so preferred shareholders received all of that and when preferred shared were cumulative
so in 2017 the preferred shareholders will be
2017 the preferred shareholders = $5,000 + ($5,000 - $4,000) = $6,000
but here when preferred shares are non cumulative
it means that the 2016 shortfall does not carry over to 2017
so in 2017 preferred shareholders receive just the normal amount that is
2017 preferred shareholders = $10 × 5% × 10,000
2017 preferred shareholders = $5,000
so correct option is $5,000
