On January 1, 2010, Framm Corporation issued 10,000 shares of its 10%, $20 par value cumulative preferred stock. No dividends were declared by Framm in 2010 or 2011. In 2012, Framm had a profitable year and was in a strong cash position, so it declared a dividend of $200,000. How much of this dividend was paid to Framm's common stockholders?

Question

Quizplus · Accepted Answer

The preferred stock dividend is $20,000 per year (10,000 shares x $20 par value x 10%). Since the dividends are cumulative, Framm owes $20,000 for 2010 and $20,000 for 2011, totaling $40,000. Subtracting this from the $200,000 declared dividend leaves $160,000 for common stockholders.

On January 1, 2010, Framm Corporation Issued 10,000 Shares of Its