Sebastiani Inc. declared a $80000 cash dividend. It currently has 3000 shares of 7% $100 par value cumulative preferred stock outstanding. It is one year in arrears on its preferred stock. How much cash will Sebastiani distribute to the common stockholders?

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The preferred stockholders are entitled to $21,000 in dividends ($3,000 x 7%). Since they are one year in arrears, they are entitled to $42,000 in dividends ($21,000 x 2). The common stockholders will receive the remaining $38,000 ($80,000 - $42,000).