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.
2016 $ 20,000
2017 $6,000
2018 $32,000
The amount of dividends paid to preferred and common shareholders in 2016 is
- 200 preferred; $19,800 common.
- $4,000 preferred; $16,000 common.
- $17,000 preferred; $3,000 common.
- $10,000 preferred; $10,000 common.
- $20,000 preferred; $0 common

Answer 1

Answer: Option (a) is correct.

Explanation:

Given that,

Dividend in 2016 = $20,000

Preferred Shares = 400

Par Value of Preferred Stock = 400 × 10 = $4000

Rate of Dividend of Preferred Stock = 5%

(a) Dividend to preferred Shareholders:

= Par Value of Preferred Stock × Rate of Dividend

= $4000  × 5%

= $200

(b) Dividend to Common Shareholders:

= Total Dividend - Dividend to Preferred Shareholders

= $20,000  - $200

= $19,800