Vega Corporation's December 31, 2018 balance sheet showed the following: 8% preferred stock, $20 par value, cumulative, 10,000 shares Vega declared and paid a $58,000 cash dividend on December 15, 2018. If the company's dividends in arrears prior to that date were $10,000, Vega's common stockholders received

Question

Vega Corporation's December 31, 2018 balance sheet showed the following: 8% preferred stock, $20 par value, cumulative, 10,000 shares  Vega declared and paid a $58,000 cash dividend on December 15, 2018. If the company's dividends in arrears prior to that date were $10,000, Vega's common stockholders received

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Preferred stockholders have a priority claim on dividends before common stockholders. The preferred stock is cumulative, which means that any past-due dividends must be paid before any dividends can be paid to common stockholders.

Before the dividend of $58,000 was paid, there were $10,000 in dividends in arrears. This means that $10,000 of the $58,000 went to paying off the past-due dividends, leaving $48,000 to be distributed to the preferred and common stockholders.

The 8% preferred stock has a par value of $20, so each share is entitled to an annual dividend of $1.60 ($20 x 8%). There are 10,000 shares, so the annual dividend for all the preferred stock is $16,000 ($1.60 x 10,000).

Since there were $10,000 in dividends in arrears, the preferred stockholders were entitled to $26,000 in dividends: $16,000 for the current year plus $10,000 in past-due dividends. This leaves $22,000 ($48,000 - $26,000) available to be distributed to common stockholders.

Therefore, the common stockholders received a dividend of $36,000 ($22,000 + $14,000 in current-year dividends for common stockholders). The correct answer is C.

Vega Corporation's December 31, 2018 Balance Sheet Showed the Following