Brewer Inc.has 5000 shares of 6% $50 par value cumulative preferred stock and 100000 shares of $1 par value common stock outstanding at December 31 2022 and December 31 2021.The board of directors declared and paid a $12000 dividend in 2021.In 2022 $60000 of dividends are declared and paid.What are the dividends received by the preferred stockholders in 2022?

Question

Quizplus · Accepted Answer

The preferred stockholders are entitled to receive a cumulative dividend of 6% on their par value before any dividend is paid to the common stockholders.

In 2021, a dividend of $12,000 was declared and paid. Since the preferred stock is cumulative, any unpaid dividend from previous years must be paid before paying a dividend on common stock. Since there was no previous year's unpaid dividend, the entire $12,000 dividend in 2021 was paid to common stockholders.

In 2022, a dividend of $60,000 is declared and paid. The preferred stockholders are entitled to the full 6% dividend on their par value before any dividend is paid to the common stockholders.

Dividend for preferred stock = 6% x $50 x 5000 shares = $15,000.

Therefore, the dividends received by the preferred stockholders in 2022 is $15,000. Option C is the correct answer.