A Corporation Has 15,000 Shares of 10%, $50 Par Cumulative

question 67

Multiple Choice

A corporation has 15,000 shares of 10%, $50 par cumulative preferred stock outstanding and 25,000 shares of no-par common stock outstanding. Dividends of $37,500 are in arrears. At the end of the current year, the corporation declares a dividend of $120,000. How is the dividend allocated between preferred and common shareholders?

• A)The dividend is allocated $7,500 to preferred shareholders and $112,500 to common shareholders.
• B)The dividend is allocated $112,500 to preferred shareholders and $7,500 to common shareholders.
• C)The dividend is allocated $120,000 to preferred shareholders and no dividend is paid to common shareholders.
• D)The dividend is allocated $75,000 to preferred shareholders and $45,000 to common shareholders.

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Definitions:

Liabilities

Financial obligations or debts that a company owes to others, arising during the course of its operations.

Goods or Services

Products or activities provided by a business to customers in exchange for payment.

Revenue Recognition Principle

Revenues are recognized when the company transfers promised goods or service to customers in the amount it expects to receive.

Transferred

Transferred refers to the process of moving assets, responsibilities, or rights from one entity to another.