If the company pays a $100,000 dividend, and the preferred stock is cumulative and three years' dividends are in arrears, what is the amount the preferred stockholders will receive?
A) $18,000
B) $24,000
C) $6,000
D) $54,000

Question

Quizplus · Accepted Answer

Since the preferred stock is cumulative and the dividends are in arrears for three years, the preferred stockholders are entitled to receive the current year's dividend plus the past three years' dividends before any dividends can be paid to common stockholders.

Therefore, the preferred stockholders will receive $24,000 in dividends ($8,000 per year for three years) before any dividends are paid to common stockholders.

If the Company Pays a $100,000 Dividend, and the Preferred