Question

Luther Inc., has 4,000 shares of 5%, $50 par value, cumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2018, and December 31, 2017. The board of directors declared and paid an $8,000 dividend in 2017. In 2018, $40,000 of dividends are declared and paid. What are the dividends received by the preferred stockholders in 2018? Group of answer choices $12,000 $20,000 $10,000 $28,000

Answer 1

Answer:

$12,000

Explanation:

For computing the preferred dividend, first we have to find out the yearly dividend which is shown below:

= Number of shares × par value per share × dividend rate

= 4,000 shares × $50 × 5%

= $10,000

In 2017, the dividend was paid of $8,000

Remaining dividend left is $10,000 - $8,000 = $2,000

So, the total preference dividend  in 2018 would be

= Yearly dividend + remaining dividend left

= $10,000 + $2,000

= $12,000

Out of $40,000, the $12,000 will be paid to preferred stockholders and the remaining $28,000 will be paid to equity stockholders