On January 1, 2016, Warhol Company issued 3,000 shares of 10%, $200 par value, cumulative preferred stock for $700,000. No preferred dividends were declared in 2016 and 2017. On December 30, 2018, the Board declared $3,000 in dividends. How much of the dividend is allocated to preferred and common shareholders?

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Quizplus · Accepted Answer

The preferred stock is cumulative, meaning any unpaid dividends accumulate. The annual dividend is 10% of $200 par value per share, which is $20 per share. For 3,000 shares, this is $60,000 per year. Since no dividends were paid in 2016 and 2017, $120,000 is owed to preferred shareholders before any common dividends can be paid. Therefore, the entire $3,000 declared in 2018 goes to preferred shareholders.

On January 1, 2016, Warhol Company Issued 3,000 Shares of 10