A company has outstanding 10 million shares of $2 par common stock and 1 million shares of $4 par preferred stock. The preferred stock has an 8% dividend rate. The board of directors declares $300,000 in total dividends for the year. Which of the following is correct if the preferred stockholders have a cumulative dividend preference? A. Preferred stockholders will receive the entire $300,000 and they must also be paid $20,000 before the end of the current accounting period; common stockholders will receive nothing.
B. Preferred stockholders will receive $24.000 (or 8% of the total dividends); common stockholders will receive the remaining $276.000 (or $300,000 $24,000).
C. Preferred stockholders will receive the entire $300,000 and they must also be paid the remaining $20,000 sometime in the future before common stockholders will receive any dividends.
C. Preferred stockholders will receive the entire $300,000, but will receive nothing more in the future relating to this dividend declaration; common stockholders will receive nothing.