Watson, Inc. has 10,000 shares of 5%, $100 par value, cumulative preferred stock and 20,000 shares of $1 par value common stock outstanding at December 31, 2017. There were no dividends declared in 2015. The board of directors declares and pays a $90,000 dividend in 2016 and in 2017. What is the amount of dividends received by the common stockholders in 2017?

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Preferred stock is entitled to a fixed dividend before any dividends can be paid to common stockholders. The preferred stock has a 5% dividend rate, which means that the preferred stockholders are entitled to receive $5 per share in dividends each year. The preferred stock is cumulative, which means that any unpaid dividends from previous years must be paid before any dividends can be paid to common stockholders.In 2015, no dividends were declared, so the preferred stockholders are entitled to receive $50,000 in dividends ($100 par value x 5% dividend rate x 10,000 shares). In 2016, the board of directors declares and pays a $90,000 dividend. This dividend is first used to pay the preferred stockholders their $50,000 in unpaid dividends from 2015. The remaining $40,000 is then available to be paid to the common stockholders.In 2017, the board of directors again declares and pays a $90,000 dividend. This dividend is first used to pay the preferred stockholders their $50,000 in dividends. The remaining $40,000 is then available to be paid to the common stockholders.Therefore, the common stockholders received $40,000 in dividends in 2017.