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A corporation that has both preferred and common stock has a deficit in accumulated earnings and profits
at the beginning of the year. The current earnings and profits are $25,000. The corporation makes a
dividend distribution of $20,000 to the preferred shareholders and $10,000 to the common shareholders.
How will the preferred and common shareholders report these distributions?
d. Preferred - $20,000 dividend income; common - $10,000 dividend income.
Preferred - $20,000 dividend income; common - $5,000 dividend income, $5,000 return of capital.
Preferred - $15,000 dividend income; common - $10,000 dividend income.
Preferred - $20,000 return of capital; common - $10,000 return of capital. CPA-05531
Choice "b" is correct. A dividend to a preferred shareholder is based on that shareholder's fixed
percentage at purchase. Preferred shareholders are not common equity owners of a corporation, and
they only get paid based on their preferred percentage; therefore, any divid...
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This note was uploaded on 06/14/2013 for the course ACCOUNTING Regulation taught by Professor Becker during the Fall '10 term at Keller Graduate School of Management.
- Fall '10
- The Land