A corporation has 20,000 shares of 17%, $50 par cumulative preferred stock outstanding and 25,000 shares of no-par common stock outstanding. Preferred dividends of $36,000 are in arrears. At the end of the current year, the corporation declares a dividend of $208,000. How is the dividend allocated between preferred and common stockholders?
A) The dividend is allocated $2000 to preferred stockholders and $206,000 to common stockholders.
B) The dividend is allocated $206,000 to preferred stockholders and $2000 to common stockholders.
C) The dividend is allocated $208,000 to preferred stockholders and no dividend is paid to common stockholders.
D) The dividend is allocated $170,000 to preferred stockholders and $38,000 to common stockholders.
B) The dividend is allocated $206,000 to preferred stockholders and $2000 to common stockholders.
Explanation: Dividend to preferred stockholders = ($50 × 17% × 20,000 shares) = $170,000 current year + $36,000 in arrears = $206,000
Dividend to common stockholders = $208,000 - $206,000 = $2000
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