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. What is the total amount of dividends paid to common shareholders during Year 3?

Question

Quizplus · Accepted Answer

Since the preferred stock is cumulative, any unpaid dividends from previous years must be paid before any dividends can be paid to common shareholders. In this case, the total amount of preferred dividends from Year 1 and Year 2 is $15,000 ($6,000 + $9,000). Therefore, in Year 3, the company must pay the remaining preferred dividend of $5,000 ($20,000 - $15,000) before it can pay any dividends to common shareholders.

Once the preferred dividend is paid, the remaining amount of dividends available for common shareholders is $15,000 ($20,000 - $5,000). However, there is no information given about how many common shares are outstanding, so it is not possible to calculate the dividend per share. Therefore, the total amount of dividends paid to common shareholders during Year 3 is unknown, and the correct answer is C) $8,000, which represents the total dividends paid to preferred shareholders during Year 3.

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