A company has10,000 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: 10,000 shares * $5 par * 3% = $1,500 annual dividend. Since dividends have not been paid for 2 years, the total arrears are $1,500 * 2 = $3,000. For the current year, add another $1,500, totaling $4,500 for preferred stockholders. For common stockholders: 25,000 shares * $2 per share = $50,000. Total dividends = $4,500 (preferred) + $50,000 (common) = $54,500.

A Company Has10,000 Shares of $5 Par, 3% Preferred Stock