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30 May, 23:00

Ultimate Sportswear has $180,000 of 7% noncumulative, nonparticipating, preferred stock outstanding. Ultimate Sportswear also has $580,000 of common stock outstanding. In the company's first year of operation, no dividends were paid. During the second year, the company paid cash dividends of $38,000. This dividend should be distributed as follows:

a. $0 preferred; $38,000 common.

b. $9,500 preferred; $28,500 common.

c. $20,000 preferred; $18,000 common.

d. $12,600 preferred; $25,400 common.

e. $19,000 preferred; $19,000 common.

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Answers (1)
  1. 31 May, 01:32
    0
    Option (D) is correct.

    Explanation:

    Given that,

    Preferred stock = $180,000

    Dividend rate = 7%

    During the second year, the company paid cash dividends = $38,000

    Preferred stock dividend:

    = Preferred stock * Dividend rate

    = $180,000 * 7%

    = $12,600

    Common stock dividend:

    = Dividend paid - Preferred stock dividend

    = $38,000 - $12,600

    = $25,400

    Therefore, this dividend should be distributed as follows:

    $12,600 preferred; $25,400 common.
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