Sabas Company has 20,000 shares of $100 par, 2% cumulative preferred stock and 100,000 shares of $50 par common stock. The following amounts were distributed as dividends: Year 1:
$10,000
Year 2:
45,000
Year 3:
90,000
Determine the dividends in arrears for preferred stock for the second year.

Question

Quizplus · Accepted Answer

In Year 1, preferred dividends should be $40,000 (20,000 shares x $100 x 2%), but only $10,000 was paid, leaving $30,000 in arrears. In Year 2, $45,000 was paid, covering the $30,000 arrears and $15,000 of the current year's $40,000, leaving $25,000 in arrears.

Sabas Company Has 20,000 Shares of $100 Par, 2% Cumulative