Question

The XYZ Corporation had a net profit of $120,000 in the fiscal year just ended. The capital stock consists of 8,000 shares of 8% convertible preferred stock with a par value of $50 per share and 20,000 shares of no-par common stock. If the board of directors declared a dividend of the entire earnings, what amount would be paid to preferred and common shareholders?

Answer 1

Amount available for distribution = $120,000

Number of shares of 8% convertible preferred stock = 8,000

Par value of preferred stock = $50

The board of directors declared a dividend of the entire earnings.

 

The amount paid to the preferred shareholders will be

Preferred Dividend = Number of shares × Par value × Interest rate

                               = 8,000×$50×8%

                               = $32,000

 

The amount paid to preferred shareholders is $32,000. 

 

The amount paid to the common shareholders will be

Dividend for common shareholders = Amount available for distribution−Preferred Dividend

                                                         = $120,000−$32,000

                                                         = $88,000

 

The amount paid to common shareholders is $88,000.

The amount paid to preferred shareholders is $32,000.

The amount paid to common shareholders is $88,000.