Slick Willie Inc. had the following shares outstanding during 20C: (1) Preferred shares, $3, cumulative, 1,000 shares with dividends in arrears for 20A and 20B.
(2) Common shares, 2,000 shares.
The total dividends declared for the current year were $21,000. What is the total amount o dividends to which the preferred shareholders are entitled?

Question

Quizplus · Accepted Answer

The preferred shares are cumulative, meaning that any dividends not paid in a year accumulate and must be paid before any dividends can be paid to common shareholders. In this case, there are two years of dividends in arrears, so the preferred shareholders are entitled to $6 per share ($3 per share per year in arrears). There are 1,000 preferred shares outstanding, so the total amount of dividends to which the preferred shareholders are entitled is $9,000 (1,000 shares x $6 per share).