Sweet Company’s outstanding stock consists of 1,400 shares of cumulative 6% preferred stock with a $100...

Sweet Company’s outstanding stock consists of 1,400 shares of cumulative 6% preferred stock with a $100 par value and 10,400 shares of common stock with a $10 par value. During the first three years of operation, the corporation declared and paid the following total cash dividends.

	Dividend Declared
year 1	$	2,400
year 2	$	6,400
year 3	$	34,000

The amount of dividends paid to preferred and common shareholders in year 3 is:

Multiple Choice

a. $16,400 preferred; $17,600 common.

b. $8,400 preferred; $25,600 common.

c. $25,200 preferred; $8,800 common.

d. $34,000 preferred; $0 common.

e. $0 preferred; $34,000 common.

Expert Solution

All working form part of the answer
Working

	Par Value per Preferred Share	Dividend rate	Dividend per Preferred Share	No. of Preferred Shares	Preferred Dividend
*Annual Preferred Dividend:*	$ 100	6.00%	$ 6.000	1,400	$ 8,400.00

Correct Answer = Option ‘A’ $ 16,400 preferred, $ 17,600 common

Working:

	Total Cash Dividend paid	Paid to Preferred	Paid to Common	Dividends in Arrears at Year end
Year 1	$ 2,400.00	$ 2,400.00	$ -	$ 6,000.00 [8400 – 2400]
Year 2	$ 6,400.00	$ 6,400.00	$ -	$ 8,000.00 [6000 + 8400 – 6400]
Year 3 [ANSWER]	$ 34,000.00	$ 16,400.00 [8000 + 8400]	$ 17,600.00	$ -
TOTAL	$ 42,800.00	$ 25,200.00	$ 17,600.00	$ -

ekkarill92 answered 2 years ago

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