Question

Xtreme Sports has $240,000 of 6% noncumulative, nonparticipating, preferred stock outstanding. Xtreme Sports also has $640,000 of common stock outstanding. In the company's first year of operation, no dividends were paid. During the second year, Xtreme Sports paid cash dividends of $44,000. This dividend should be distributed as follows:
$0 preferred; $44,000 common.

$14,400 preferred; $29,600 common.

$11,000 preferred; $33,000 common.

$22,000 preferred; $22,000 common.

$23,000 preferred; $21,000 common.

Answer 1

Answer:

$14,400 preferred; $29,600 common.

Explanation:

Preferred dividend is accrued and paid on the issued preferred stock of the company. The preferred shareholder has priority on common shareholders and they will be paid at any desired rate, first if dividend is paid.

Total Dividend paid = $44,000

Dividend For preferred stock = Preferred Stock value x Rate for preferred dividend

Dividend For preferred stock = 240,000 x 6%

Dividend For preferred stock = $14,400

Common stock Dividend = Total Dividend - Preferred stock dividend

Common stock Dividend = $44,000 - $14,400 = $29,600