Zaina Industries has declared a $43,000 cash dividend to shareholders. The company has 4,500 shares of $20-par, 5% preferred stock and 20,000 shares of $20-par common stock. The preferred stock is cumulative. How much will be distributed to the preferred and common stockholders on the date of payment if the preferred stock is $12,000 in arrears?
A) $43,000 preferred, $0 common
B) $4,500 preferred, $38,500 common
C) $16,500 preferred, $26,500 common
D) $21,500 preferred, $21,500 common
C) $16,500 preferred, $26,500 common
Explanation: step 1) preferred payment is (outstanding shares × par value × dividend rate) + amount in arrears; step 2) subtract preferred amount from dividends paid for amount for common stockholders. Ex: step 1) (4,500 × $20 × 5%) + $12,000 = $16,500 preferred; step 2) $43,000 - $16,500 = $26,500 common
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