Berman Inc. has 6,000 shares of 8%, $50 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2013, and December 31, 2014. The board of directors declared and paid an $18,000 dividend in 2013. In 2014, $72,000 of dividends are declared and paid. What are the dividends received by the common stockholders in 2014?
A) $42,000.
B) $36,000.
C) $30,000.
D) $24,000.

Question

Quizplus · Accepted Answer

The preferred stock is cumulative, which means that any dividends that are not paid in one year must be paid in a subsequent year before any dividends can be paid to the common stockholders. In 2013, the preferred stockholders are entitled to $48,000 of dividends (6,000 shares x $8 per share). Since only $18,000 of dividends were paid in 2013, the preferred stockholders are entitled to $30,000 of dividends in 2014. This leaves $42,000 of dividends available for the common stockholders in 2014.