Brown Company has 1,000 shares of 5%, $100 par cumulative preferred stock outstanding at December 31, 2015. No dividends have been paid on this stock for 2014 or 2015. Dividends in arrears at December 31, 2015 total

Question

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Since the preferred stock is cumulative, any dividends that were not paid in the current or past years must be paid before any dividends can be paid to common stockholders. Therefore, the dividends in arrears total $10,000 ($100 par value x 5% dividend rate x 2 years). The correct choice is (D).

Brown Company Has 1,000 Shares of 5%, $100 Par Cumulative