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

question 29

Multiple Choice

A corporation has 10,000 shares of 10%, $50 par noncumulative preferred stock outstanding and 20,000 shares of no-par common stock outstanding. At the end of the current year, the corporation declares a dividend of $120,000.
What is the dividend per share for preferred shares and for common shares?

• A) The dividend per share is $5.00 to preferred shares and $3.50 to common shares.
• B) The dividend per share is $6.67 to preferred shares and $1.50 to common shares.
• C) The dividend per share is $1.00 to preferred shares and $6.75 to common shares.
• D) The dividend per share is $50.00 to preferred shares and $1.00 to common shares.

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Definitions:

Markup

An amount added to the cost price of goods to cover overhead and profit.

Absorption Costing

An accounting method that includes all direct costs and an allocated portion of fixed and variable overhead costs in the cost of a product.

Cost-plus Pricing

Setting the price of a product by adding a markup to its variable costs to ensure a margin of profit.

Return on Investment

A financial ratio used to calculate the profitability of an investment, representing the percentage return on the invested amount.