Question

Fargo Company's outstanding stock consists of 400 shares of noncumulative 5% preferred stock with a $10 par value and 3,000 shares of common stock with a $1 par value. During the first three years of operation, the corporation declared and paid the following total cash dividends.
Year Dividend Declared
2015 $20,000
2016 $6,000
2017 $32,000

The amount of dividends paid to preferred and common shareholders in 2015 is:

a. $200 preferred; $19,800 common.
b. $4,000 preferred; $16,000 common.
c. $17,000 preferred; $3,000 common.
d. $10,000 preferred; $10,000 common.
e. $20,000 preferred; $0 common.

Answer 1

Answer:

The correct option is a. $200 preferred; $19,800 common.

Explanation:

These can be calculated as follows:

Dividends paid to preferred shareholders in 2015 = Number of outstanding shares of noncumulative preferred stock * Preferred stock par value * Dividend percentage of preferred stock = 400 * $10 * 5% = $200

Dividends paid to common shareholders in 2015 = Dividend declared and paid in 2015 - Dividends paid to preferred shareholders in 2015 = $20,000 - $200 = $19,800

Therefore, the correct option is a. $200 preferred; $19,800 common.