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

Question

Business

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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)

Know the Answer?

Quinn Manning · Answer 1

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