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dividends of common shares will be
A-50000
B-75000
C-100000
D-200000
C-100,000
-Dividends of common shares will be after deducting the dividends for preferred share holders.
-Preferred shareholder dividends should be paid prior to common share dividends.
-Working;
Net income1,000,000 -400,000 -100,000 =500,000
Dividend40% of net income500,000 x40% =200,000 (assumed for both preferred and common shareholders as a whole)
Dividend for common shareholders =100,000 (200,000 x50,000/100,000)
Answer option >>>>>>>>>>>>>>> C-100000
My answer may or may not be C. It depends on the type preference of the preferred shareholders or are there any dividends to preferred shareholders in arrears in the previous periods. There are preferred shares that are entitled dividends based on % of par value which must be settled first. There are preferred shares that after getting paid fixed % and then participate with the distribution of the residue with common shareholders. In some cases there are preferred dividends in arrears that must be settled first before any payment is made to common stock holders. So there are many factors to consider before deciding the distribution of dividends and this case is silent about these factors. Moreover, for the calculation of dividends or dividends per share, there is no point showing fixed cost and variable cost separately. It makes no sense. The segregation makes sense for the study of the behavior of costs versus revenues and applicable in management accounting analysis purposes. This exercise is applicable in the so-called variable costing method. The determination of net income for dividend purposes does not require cost segregation as to fixed and variable as in variable costing. It is suffice to segregate cost and expenses into: cost of goods sold, SG&A, interest expense, other income/expense, and zakat.
Answer is C.
Preferred Shares is class ownership in an entity that has higher claims over common shares. In the question, computing that the net income is 500,000 and declared dividends is 40%, 200,000. Preferred shares is 50,000/100,000 is 50% multiplied by dividends declared (200,000x50% = 100,000). Remaining dividends 200,000 - 100,000 = 100,000 which is given to common shareholders.
100000 for normal share holders
Agree with answers given C
The correct answer is option C - 100000
Net Income=S.P(S-V)-F
Net Income=1000000-400000-100000
Net Income=500000
Dividends=40%of Net Income
Dividends=40%*500000
Dividends=200000
Correct answer is D.