Seymore Corp. has the following number of shares of stock outstanding:The company will pay cash dividends totaling $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

Question

common dividends per share that stockholders will receive in the current year is $6.40.________ e) After the $80,000 dividend is paid, the amount of dividends in arrears equals zero.

What will be an ideal response?

Answer 1

a) F b) F c) T d) F e) T

a) This is false. Preferred dividend amount = 2,000 shares × Par value of $100 per share × 8% = $16,000; Current year preferred dividends = Current year preferred dividend of $16,000 + Dividends in arrears for one year of $16,000 = $32,000
b) This is false. After required preferred dividends are paid, common stockholders receive the entire remainder.
c) This is true. Common dividend = Total cash dividend of $80,000 ? Preferred dividend of $32,000 (calculated in part a) = $48,000 
d) This is false. Common dividend per share = Common dividend of $48,000 (calculated in part c) ÷ 20,000 Common shares = $2.40 per share
e) This is true. Because the total dividend of $80,000 covers the dividend in arrears of $16,000 plus the $16,000 current dividend, the amount of dividend in arrears is now zero.