Question

Ultimate Sportswear has $190,000 of 6% noncumulative, nonparticipating, preferred stock outstanding. Ultimate Sportswear also has $590,000 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 $39,000. This dividend should be distributed as follows:
a. $14,400 preferred; $29,600 common.
b. $22,000 preferred; $22,000 common.
c. $11,000 preferred; $33,000 common.
d. $0 preferred; $44,000 common.
e. $23,000 preferred; $21,000 common.

Answer 1

Answer:

$11,400  and $27,600

Explanation:

The computation of the dividend distributed are as follows

Given that

6% noncumulative, nonparticipating, preferred stock = $190,000.

Common stock outstanding   = $590,000.

In the first year,  no dividend paid by the company.

The preferred stock is noncumulative that means no dividend will be a carryover.

Second year dividend paid by company = $39,000

 Now based on the given information, the dividend distributed are as follows

For preffered stock

= $190,000 × 6%

= $11,400

And for common stock

= $39,000 - $11,400

= $27,600

This is the correct answer but the same is not provided in the given options

First we have to paid preferred stockholders and then equity stockholders