If the company pays a $35,000 dividend, and the preferred stock is cumulative and two years' dividends are in arrears, what is the amount the common stockholders will receive?

Question

Quizplus · Accepted Answer

If the preferred stock is cumulative and two years' dividends are in arrears, the preferred stockholders must be paid for those two years plus the current year's dividend before any dividends can be paid to common stockholders. Assuming the annual preferred dividend is $6,000, the total owed to preferred stockholders is $18,000 (3 years x $6,000). Therefore, the common stockholders will receive $35,000 - $18,000 = $17,000.

If the Company Pays a $35,000 Dividend, and the Preferred