Question

Gracey's Department Stores has $200,000 of 6% noncumulative, nonparticipating, preferred stock outstanding. Gracey's also has $600,000 of common stock outstanding. During its first year, the company paid cash dividends of $30,000. This dividend should be distributed as follows:

Answer 1

Answer:

$12,000 preferred; $18,000 common.

Explanation:

Data provided in the question:

noncumulative, nonparticipating, preferred stock outstanding = $200,000

common stock outstanding = $600,000

cash dividends paid in the first year = $30,000

Now,

Preferred Stockholders are given the first preference

Thus,

Preferred Stockholders due dividend = preferred stock outstanding × 6%

= $200,000 × 0.06

= $12,000

Therefore,

The common Stockholder will receive the remaining dividend

= cash dividends paid in the first year - Preferred Stockholders due dividend

= $30000 - $12000

= $18,000

Hence,

$12,000 preferred; $18,000 common.