A Company Has Outstanding 10 Million Shares of $2 Par

question 119

Multiple Choice

A company has outstanding 10 million shares of $2 par common stock and 1 million shares of $4 par preferred stock.The preferred stock has an 8% dividend rate.The company declares $300,000 in total dividends for the year.Which of the following is true if the preferred stockholders only have a current dividend preference?

• A)Preferred stockholders will receive the entire $300,000,and they must also be paid $20,000 before the end of the current accounting period.Common stockholders will receive nothing.
• B)Preferred stockholders will receive $24,000 or 8% of the total dividends.Common stockholders will receive the remaining $276,000.
• C)Preferred stockholders will receive the entire $300,000,and they must also be paid $20,000 sometime in the future before common stockholders will receive anything.
• D)Preferred stockholders will receive the entire $300,000,but will receive nothing more relating to this dividend declaration.Common stockholders will receive nothing.

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Definitions:

Payback Period

The duration it takes for an investment to recoup its initial costs through profits or savings.

Scrap Value

The estimated resale value of assets at the end of their useful life or the value of leftover materials after the production process.

Operating Income

The profit realized from a business's core operations, excluding deductions of interest and taxes.

Depreciation

The systematic allocation of the cost of a tangible asset over its useful life, reflecting its consumption or wear and tear.