Question

A $2,000 cash dividend is planned in 2019. No dividend was paid in 2018. 1,000 shares of 5% cumulative $10 par value preferred stock and 10,000 shares of $1 par value common stock are outstanding. How much of the dividend should be paid to common shareholders in 2019? Select one: a. $1,500 b. $500 c. $1,000 d. $2,000

Answer 1

Answer:

C) $1000

Explanation:

First lets calculate the cumulative preferred stock dividend for 2 years

(1000 * 10 ) * 5% = 500 / year

so for 2 years = $1000 since it is cumulative and not paid in one year is added to next year.

Total dividend payable = $2000

so for common stock whatever is left over is paid thus,

Common stock share = Total - Preferred cumulative = 2000 - 1000 = $1000

Hope that helps.