Question

Atlantis Corporation has 12,000 shares of 14%, $78 par noncumulative preferred stock outstandingand 29,000 shares of no-par common stock outstanding. At the end of the current year, thecorporation declares a dividend of $188,000. How is the dividend allocated between preferred andcommon stockholders?A) The dividend is allocated $55,024 to preferred stockholders and $132,976 to commonstockholders.B) The dividend is allocated $316,680 to preferred stockholders and $128,680 to commonstockholders.C) The dividend is allocated $131,040 to preferred stockholders and $56,960 to commonstockholders.D) The dividend is allocated $6023 to preferred stockholders and $132,976 to commonstockholders.

Answer 1

Answer:

C) The dividend is allocated $131,040 to preferred stockholders and $56,960 to common stockholders

Explanation:

For computing the allocation of dividends between the preferred and common stockholders, we have to calculate them separately.  

Since the total dividend amount is $188,000

And, the preferred shareholder dividend equals to

= Number of shares × price per share × rate

= 12,000 × $78 × 14%

= $131,040

So, the common stockholder dividend equals to

= Total dividend - preference shareholder dividend

= $188,000 -  $131,040

= $56,960

The number of common stock outstanding shares is irrelevant. Thus, it is ignored.