The Surf's Up Issues 1,000 Shares of 6%,$100 Par Value

question 60

Multiple Choice

The Surf's Up issues 1,000 shares of 6%,$100 par value preferred stock at the beginning of 2011.All remaining shares are common stock.The company was not able to pay dividends in 2011,but plans to pay dividends of $18,000 in 2012.Assuming the preferred stock is noncumulative,how much of the $18,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders in 2012?

• A)$6,000 to preferred stockholders and $12,000 to common stockholders.
• B)$18,000 to preferred stockholders and $0 to common stockholders.
• C)$12,000 to preferred stockholders and $6,000 to common stockholders.
• D)$9,000 to preferred stockholders and $9,000 to common stockholders.

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Definitions:

Market Value

The rate at which the market currently allows the buying or selling of a service or asset.

Firm's Equity

The value of a company owned by its shareholders, representing the residual assets of the company after debts have been subtracted.

Dealer Markets

Markets where dealers buy and sell securities for their own accounts at their own risk.

OTC Market

The Over-the-Counter (OTC) market refers to decentralized trading of securities, such as stocks and bonds, not conducted on a formal exchange.