Question

The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 60,000 shares were originally issued and 5,000 were subsequently reacquired. What is the amount of cash dividends to be paid if a $1 per share dividend is declared?A. $60,000B. $5,000C. $100,000D.$55,000

Answer 1

The correct answer is D that is $55,000

Step-by-step explanation:

The outstanding number of shares is computed as:

Outstanding number of shares = Numbers of shares which are originally issued - Numbers of shares reacquired

= 60,000 - 5,000

= 55,000

The total dividends declared is computed as:

Total dividends declared = Outstanding number of shares × Dividends per share declared

= 55,000 × $1

= $55,000

Note:

The dividends are payable only on the outstanding numbers, not on reacquired shares.