Curtain Company paid dividends of $7,000; $11,000; and $14,000 during Year 1, Year 2, and Year 3, respectively. The company had 1,400 shares of 7.0%, $100 par value preferred stock outstanding that paid a cumulative dividend. The amount of dividends received by the common shareholders during Year 3 would be:

Question

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The preferred stock dividend per year is 1,400 shares * $100 * 7% = $9,800. Since the dividends are cumulative, any unpaid dividends from previous years must be paid before common shareholders receive dividends. In Year 1, $7,000 was paid, leaving $2,800 unpaid. In Year 2, $11,000 was paid, covering the $9,800 for Year 2 and $1,200 of the Year 1 shortfall, leaving $1,600 unpaid. In Year 3, $14,000 was paid, covering $9,800 for Year 3 and the remaining $1,600 shortfall, leaving $2,600 for common shareholders.

Curtain Company Paid Dividends of $7,000; $11,000; and $14,000 During