Ace Corporation pays its cumulative preferred stock $1.95 per share. There are 40,000 shares of preferred and 80,000 shares of common. In 2012, 2013, and 2014, because of slowdowns in the economy, Ace paid no dividends. Now, in 2015, the board of directors has decided to pay out $600,000 in dividends. The common stockholders receive:

Question

Quizplus · Accepted Answer

The preferred stockholders must be paid their cumulative dividends for 2012, 2013, 2014, and 2015 before common stockholders receive anything. This totals $1.95 * 40,000 shares * 4 years = $312,000. The remaining $600,000 - $312,000 = $288,000 goes to common stockholders.

Ace Corporation Pays Its Cumulative Preferred Stock $1