Bach, Inc. has declared a $21,000 cash dividend to shareholders. The company has 5,000 shares of $15-par, 7% preferred stock and 11,000 shares of $20-par common stock. The preferred stock is non-cumulative. How much will be distributed to the preferred and common stockholders on the date of payment?
A) $0 preferred, $21,000 common
B) $5,250 preferred, $15,750 common
C) $21,000 preferred, $0 common
D) $15,750 preferred, $5,250 common
B) $5,250 preferred, $15,750 common
Explanation: step 1) preferred payment is outstanding shares × par value × dividend rate; step 2) subtract preferred amount from dividends paid for amount for common stockholders. Ex: step 1) 5,000 × $15 × 7% = $5,250 preferred; step 2) $21,000 - $5,250 = $15,750 common
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