Beckham Company has 1,000 shares of 6%, $100 par cumulative preferred stock outstanding at December 31, 2010. No dividends have been paid on this stock for 2009 or 2010. Dividends in arrears at December 31, 2010 total

Question

Quizplus · Accepted Answer

Cumulative preferred stock means that the dividends must be paid before any dividends can be paid to the common stockholders. Since no dividends have been paid for 2009 or 2010, the total amount of dividends in arrears is two years of dividends, which is calculated as follows: 
$100 par value x 6% dividend rate = $6 dividend per share per year
$6 dividend per share per year x 1,000 shares = $6,000 total annual dividend on the preferred stock
$6,000 total annual dividend on the preferred stock x 2 years = $12,000 dividends in arrears. Therefore, the answer is D.

Beckham Company Has 1,000 Shares of 6%, $100 Par Cumulative