Question

Seaside Developments Inc. has $200,000 of no par value 4% cumulative preferred shares, and 12,000 shares of no par value common shares outstanding. In its first three years of operation, the company paid cash dividends as follows: Year 1: $8,000; Year 2: $18,000; and Year 3: $24,000. The amount of dividends received by the common shareholders in year 3 was

a) $8,000

b) $12,000

c) $16,000

d) $20,000

Answer 1

Par value of preferred stock = $200,000

Dividend rate on preferred stock = 4%

Annual preferred dividend = Par value of preferred stock x  Dividend rate on preferred stock

= 200,000 x 4%

= $8,000

Dividend distribution table

	Preferred stockholders'	Common stockholders'
Year 1	$8,000	0
Year 2	$8,000	$10,000
Year 3	$8,000	$16,000

Hence, in year 3, dividend received by common stockholders' was $16,000

Correct option is (c)

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