Ardent Inc had 1,000 shares of $100 par, 6% preferred stock outstanding, as well as 100,000 shares of $.01 par common stock On March 31, 1996, their year-end, the board of directors declared a dividend of $9,500. In the past, they have tried to maintain minimum dividend of $.1 per share on common stock.
Suppose the preferred stock is cumulative, and Ardent, having had a slow year, was unable to pay any dividends last year. In that case, preferred stockholders would receive _______ and common stockholders would receive _______ on March 31 of this year.
a. $6,000; $3,500
b. $12,000; $0
c. $9,500; $0
d. $12,000; $10,000
e. $4,750; $4,750
Answer: c. $9,500; $0
- 1,000 shares x $100 par value x 6% = $6,000 for last year plus only $3,500 for this year since the dividends owed for this year ($6,000) exceed the amount available for this year ($9,500 dividend declared - $6,000 already paid to preferred stockholders for the last years dividend in arrears = only $3,500 available for this year ;
- $9,500 dividend declared - $9,500 paid to preferred stockholders = $0
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