Hi I was hoping to get some help in learning how to solve th

(Hi! I was hoping to get some help in learning how to solve the question below. Thank you!)

Wizard Corporation has 20,000 shares of noncumulative, 5%, $100 par, preferred stock outstanding as well as 100,000 shares of $3 par common stock. The Board of directors has passed dividends for the past three years, not counting the current year. The board of directors wants to give the common stockholders a $1.25 dividend per share. The total dividends to be declared must be_____.

A. $60,000

B. $100,000

C. $225,000

D. $125,00

Solution

Since preferred stock is noncumulative,dividend not paid for in one year is not carried forward to the next year.

However dividends to preferred stock must be paid before common stock dividend is paid for.

Hence total dividend for:

Preferred stock=(20,000*100)*5%=$100,000

Common stockholders=(1.25*100,000)=$125000

Total=$225000(C).