Curtain Company paid dividends of $6,000; $12,000; and $20,000 during Year 1, Year 2, and Year 3, respectively. The company had 1,000 shares of 5%, $200 par value preferred stock outstanding that paid a cumulative dividend. The amount of dividends received by the common shareholders during Year 3 would be:

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The preferred stock is cumulative, which means that any unpaid dividends in prior years must be paid before any dividends can be paid to common shareholders. In Year 1, there were no unpaid dividends. In Year 2, the preferred shareholders were owed $1,000 in unpaid dividends (5% x 1,000 x $200 par value = $10,000; $10,000 - $12,000 = -$2,000; however, cumulative dividends means that the company still owes the preferred shareholders the $2,000 in unpaid dividends). In Year 3, the preferred shareholders were owed $3,000 in unpaid dividends ($1,000 from Year 2 plus $2,000 from Year 3). Therefore, the total amount of dividends paid to the preferred shareholders in Year 3 is $23,000 ($20,000 for Year 3 plus $3,000 in unpaid dividends from prior years). Since the preferred stock is cumulative, the common shareholders cannot receive dividends until the preferred shareholders have received their full dividends. Therefore, no dividends are available for the common shareholders in Year 3.

Curtain Company Paid Dividends of $6,000; $12,000; and $20,000 During