A Corporation Had the Following Stock Outstanding When the Company's

question 194

Essay

A corporation had the following stock outstanding when the company's board of directors declared a $95,000 cash dividend in the current year:
$\begin{array}{|l|r|}\hline \text { Preferred stock, } \$ 100 \text { par, } 6 \%, 5,000 \text { shares issued } & \$ 500,000 \\\hline \text { Common stock, } \$ 10 \text { par, } 70,000 \text { shares issued } & 700,000 \\\hline \text { Total } & \$ 1,200,000 \\\hline\end{array}$ Allocate the cash dividend between the preferred and common stockholders assuming the preferred stock is noncumulative and nonparticipating.

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Definitions:

Income Taxes

Taxes that individuals or entities are required to pay to a government, based on income earned over a fiscal period; these taxes vary by country and the details of the taxpayer's income situation.

Working Capital

The difference between a company's current assets and its current liabilities, indicating the short-term liquidity of the business.

Income Tax Rate

The proportion of earnings handed over to the government as tax.

After-Tax Discount Rate

The discount rate that takes into account the effect of taxes on the net income from an investment.