Mercury Corp.has 10, 000 shares of $10 par, cumulative, 6% preferred stock and 10, 000 shares of common stock outstanding since being organized at the beginning of 2010.It declared its first dividend of $40, 000 at the end of 2012.This means that

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The preferred stock is cumulative, meaning any unpaid dividends accumulate. For 3 years (2010, 2011, 2012), the preferred stockholders are owed dividends: 10,000 shares x $10 par x 6% x 3 years = $18,000. The $40,000 dividend will first cover the $18,000 owed to preferred stockholders, with the remainder going to common stockholders.