Seymore Corp. has the following number of shares of stock outstanding: Cumulative preferred stock, 8%, $100 par2,000shares Common stock, $12 par20,000shares Seymore will distribute $80,000 to the two classes of stockholders this year. Not counting the current year, the preferred stock dividends are one year in arrears. Indicate whether each of the following statements is true or false._____ a) Preferred stockholders will receive $16,000 of cash dividends in the current year._____ b) After all required preferred dividends are paid, preferred and common stockholders will share the remaining dividend._____ c) Common stockholders will receive $48,000 of cash dividend in the current year._____ d) The amount of common dividends per share that stockholders will receive in the current
year is $6.40._____ e) The amount of dividends in arrears is zero after the $80,000 of dividends have been paid.
What will be an ideal response?
a) This is false. $100 par × 2,.000 shares × 8% × 2 years = $32,000 preferred dividend. The cumulative preferred stock is one year in arrears. As such, a time period of two years is used here.
b) This is false. After required preferred dividends are paid, common stockholders receive the entire remainder.
c) This is true. $80,000 - $32,000 preferred dividend = $48,000 common dividend
d) This is false. $48,000 common dividend ÷ 20,000 shares = $2.40 per share
e) This is true. Because the $80,000 total dividend is more than the $16,000 dividend in arrears plus the $16,000 current dividend, the amount of dividend in arrears is zero.
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