Question

Fastlane Company has 50,000 shares of common stock and 20,000 shares of preferred stock outstanding. There was no change in the number of common or preferred shares outstanding during the year. Preferred stockholders received dividends this year totaling $120,000. Common stockholders received dividends totaling $200,000. If the dividend payout ratio for the year was 80%, then the net income was:_____.
a. $400,000.
b. $370,000.
c. $160,000.
d. $250,000.

Answer 1

Answer:

Option b is correct

Net income = $370,000

Explanation:

Dividend paid to common stock holders = Dividend payout ratio× earnings available to common stockholder

Let the total earnings be "y"

120,000 =80%×  y

y = 120,000/0.8

y= 250,000

Net income = Earnings payable to common stockholders + Preferred dividend

Net income = 250000  + 120,000 = $370,000

Net income = $370,000