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31 January, 21:12

Fargo Company's outstanding stock consists of 400 shares of noncumulative 5% preferred stock with a $10 par value and 3,000 shares of common stock with a $1 par value. During the first three years of operation, the corporation declared and paid the following total cash dividends.

2016 $ 20,000

2017 $6,000

2018 $32,000

The amount of dividends paid to preferred and common shareholders in 2016 is

- 200 preferred; $19,800 common.

- $4,000 preferred; $16,000 common.

- $17,000 preferred; $3,000 common.

- $10,000 preferred; $10,000 common.

- $20,000 preferred; $0 common

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Answers (1)
  1. 1 February, 00:00
    0
    Answer: Option (a) is correct.

    Explanation:

    Given that,

    Dividend in 2016 = $20,000

    Preferred Shares = 400

    Par Value of Preferred Stock = 400 * 10 = $4000

    Rate of Dividend of Preferred Stock = 5%

    (a) Dividend to preferred Shareholders:

    = Par Value of Preferred Stock * Rate of Dividend

    = $4000 * 5%

    = $200

    (b) Dividend to Common Shareholders:

    = Total Dividend - Dividend to Preferred Shareholders

    = $20,000 - $200

    = $19,800
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