Fargo Company's Outstanding Stock Consists of 400 Shares of Noncumulative

question 70

Multiple Choice

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. The amount of dividends paid to preferred and common shareholders in year 1 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.

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Definitions:

Contribution Margin Ratio

The percentage of sales revenue remaining after variable costs are deducted, indicating how much contributes to fixed costs and profit.

Fixed Expenses

Costs that do not change with the level of production or sales over a certain period, such as rent, salaries, and insurance.

Sales

The total amount received from selling goods or services over a given period.

Residual Income

The income that exceeds the minimum required return on an investment or business segment.