A company has the following paid-in capital:

-Use the information above to answer the following question.If the company pays a $100,000 dividend,and the preferred stock is cumulative and three years' dividends are in arrears,what is the amount the preferred stockholders will receive?
A) $18,000
B) $24,000
C) $6,000
D) $54,000

Question

A company has the following paid-in capital:
 
-Use the information above to answer the following question.If the company pays a $100,000 dividend,and the preferred stock is cumulative and three years' dividends are in arrears,what is the amount the preferred stockholders will receive?
A) $18,000 
B) $24,000 
C) $6,000 
D) $54,000

Quizplus · Accepted Answer

Since the preferred stock is cumulative and three years' dividends are in arrears, the preferred stockholders will receive their current dividend plus the dividend they missed over the last three years. The calculation for the preferred dividend is as follows:
Preferred dividend = ($100,000 - common dividends) * (preferred stock percentage)
Since there is no information given about common dividends, assume that there are none. Then the preferred dividend is:
Preferred dividend = ($100,000 - $0) * 8% = $8,000
Since the preferred stock is three years in arrears, the total owed to them is:
Total preferred owed = 3 years * $8,000 per year = $24,000
Therefore, the amount the preferred stockholders will receive is $24,000.

A Company Has the Following Paid-In Capital