Ultimate sportswear has $200,000 of 8% noncumulative, nonparticipating, preferred stock outstanding. ultimate sportswear also has $600,000 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 $40,000. this dividend should be distributed as follows:

Question

Roger George

Business

19 December, 23:21

Ultimate sportswear has $200,000 of 8% noncumulative, nonparticipating, preferred stock outstanding. ultimate sportswear also has $600,000 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 $40,000. this dividend should be distributed as follows:

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Mylie Lam · Answer 1

The total cash dividends are given as = $ 40,000

Since, the preferred stock is given, so first the cash dividends are allocated to the preferred stock.

The preferred stock given = $ 200,000 issued for 8 %.

The preferred dividends are calculated as = $ 200,000 * 8 % = $ 16,000

The total cash dividends = $ 40,000

The common stock dividends = Total dividends - Total preferred dividends

The common stock dividends = $ 40,000 - $ 16,000 = $ 24,000

Thus, common stock = $ 24,000, preferred dividends = $ 16,000