A corporation has 5,000 shares of $5 par,6% cumulative preferred stock outstanding and 25,000 shares of $2 par common stock outstanding.No dividends have been paid for the past two years.If the company wishes to distribute $2 per share to the common stockholders this year,what is the total amount of dividends that must be paid?

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Quizplus · Accepted Answer

The preferred stock is cumulative, so dividends for the past two years must be paid before common stockholders receive dividends. The annual dividend for preferred stock is 5,000 shares * $5 * 6% = $1,500. For two years, this is $3,000. Adding the current year's preferred dividend ($1,500), the total preferred dividend is $4,500. The common stock dividend is 25,000 shares * $2 = $50,000. The total dividend is $4,500 + $50,000 = $54,500.

A Corporation Has 5,000 Shares of $5 Par,6% Cumulative Preferred