Watson Company has 5,000 shares of $5 par, 3% preferred stock outstanding, and 25,000 shares of $2 par common stock outstanding.The preferred stock is cumulative and no dividends have been paid for the past two years.If the company wishes to distribute $2 per share to the common stockholders, what is the total amount of dividends that must be paid in the current year?

Question

Quizplus · Accepted Answer

First, calculate the dividends in arrears for the preferred stock: 5,000 shares * $5 par * 3% * 2 years = $1,500. Then, calculate the current year's preferred dividends: 5,000 shares * $5 par * 3% = $750. Add these to get the total preferred dividends: $1,500 + $750 = $2,250. For the common stock: 25,000 shares * $2 per share = $50,000. Total dividends = $2,250 (preferred) + $50,000 (common) = $52,250.

Watson Company Has 5,000 Shares of $5 Par, 3% Preferred