A Company Has Outstanding 10 Million Shares of $2 Par

question 65

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 correct 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:

Delegatee

An individual or party to whom duties or authority have been delegated by another, known as the delegator.

Incidental Beneficiary

A third party who benefits from a contract between two other parties, but for whom the benefit was not the contract's primary intent.

Intended Beneficiary

A person or entity that is specifically designated to benefit from a contract, even though they are not a direct party to that contract.

Reasonable Person

A legal standard used to determine how an average person would responsibly act under certain circumstances for the purposes of establishing negligence in civil law.