Brown Company has 1,000 shares of 5%, $100 par cumulative preferred stock outstanding at December 31, 2021.No dividends have been paid on this stock for 2020 or 2021.Dividends in arrears at December 31, 2021 total

Question

Quizplus · Accepted Answer

Cumulative preferred stock means that any missed preferred dividends accumulate and must be paid before any common dividends can be paid. Since no dividends have been paid on this stock for 2020 or 2021, the dividends in arrears at December 31, 2021 will be equal to two years' worth of dividends.

$100 par value x 5% annual dividend rate = $5 annual dividend per share
$5 annual dividend per share x 1,000 shares outstanding = $5,000 total annual dividend
$5,000 x 2 years = $10,000 in dividends in arrears at December 31, 2021.

Therefore, the correct answer is D. $10,000.

Brown Company Has 1,000 Shares of 5%, $100 Par Cumulative