Question

26. The ZZ Corporation had the following shares of stock outstanding at December 31, 2019: Common Stock, $50 par value, 40,000 shares outstanding; and Preferred Stock, 6 percent, $100 par value, cumulative,10,000 shares outstanding. Dividends for 2017 and 2018 were in arrears. On December 31, 2019, ZZ declared total cash dividends of $250,000. The total amounts payable to preferred stockholders and common stockholders, respectively, are:

1. $60,000/$190,000

2. $120,000/$130,000

3. $125,000/$125,000

4. $180,000/$70,000

Answer 1

Answer

• Annual Preferred dividend = 10000 shares x $ 100 par x 6% = $ 60,000
• No of years for which dividend is payable to Preferred stockholder in 2019
  = For 3 years [2 years’ arrear of dividend + 2019’s dividend]
  = $ 60000 x 3
  = $ 180,000
• Total dividend declared = $ 250,000
• Dividend for common stockholders = $ 250000 - $ 180000 preferred dividend
  = $ 70,000
• Correct Answer = Option #4
  $ 180000 [preferred stockholders] and $ 70000 [common stockholders]