Question

Outstanding stock of the Abel Corporation included 20,000 shares of $5 par common stock and 10,000 shares of 5%, $10 par noncumulative preferred stock. In 2009, Abel declared and paid dividends of $4,000. In 2010, Abel declared and paid dividends of $12,000. How much of the 2010 dividend was distributed to preferred shareholders

Answer 1

Answer:

So, in 2010, out of the dividends of $12000, $5000 was distributed to preferred stockholders.

Explanation:

A non cumulative preferred stock is a kind of stock that has a preference in terms of dividend payment over ordinary/common stock. This means that the dividend on the preferred stock is paid first and any remaining amount after dividend payment to this stock is distributable among common stockholders. Furthermore, in case dividends are not paid in a particular year, that year's dividends are not payable in future in case the stock is a non cumulative one. So, the dividends paid to non cumulative preferred stock in 2010 will be,

Dividend per year - Preferred stock = 10000 * 10 * 0.05 = $5000

So, in 2010, out of the dividends of $12000, $5000 was distributed to preferred stockholders.