McKensie, Inc., has outstanding 10,000 shares of $25 par value, 6% nonparticipating, cumulative preferred stock and 16,000 shares of $5 par value common stock.
If the dividend on preferred stock is two years in arrears, and the total cash dividend declared this year is $85,000, then the total amounts distributed to preferred and common stockholders, respectively, are:

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Quizplus · Accepted Answer

The preferred stock dividend per year is calculated as 10,000 shares * $25 par value * 6% = $15,000. Since dividends are two years in arrears, the total preferred dividends owed before this year's dividend is $15,000 * 2 = $30,000. This year's preferred dividend is another $15,000, making the total preferred dividends $45,000. The remaining $85,000 - $45,000 = $40,000 is distributed to common stockholders.