Question

Fargo Company's outstanding stock consists of 600 shares of noncumulative 5% preferred stock with a $10 par value and 3,200 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. Dividend Declared year 1$22,000 year 2$5,000 year 3$31,000 The amount of dividends paid to preferred and common shareholders in year 1 is:

Answer 1

Answer:

$300 and $21,700 respectively.

Explanation:

Preference Stock has preference when it comes to payment of dividends. So the dividend declared is first paid to Preference Stock holders then the remainder to Common Stock Holders.

Preference Stock Dividend :

Dividend = 600 shares x 5% x $10 = $300

Common Stock Dividend :

Dividend = $22,000 - $300 = $21,700

therefore,

The amount of dividends paid to preferred and common shareholders in year 1 is: $300 and $21,700 respectively.