Kuhns Corp. has 200,000 shares of preferred stock outstanding that is cumulative. The dividend is $3.00 per share and has not been paid for three years. If Kuhns earned $1 million this year, what could be the maximum payment to the preferred stockholders on a per share basis?

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Since the preferred stock is cumulative, any unpaid dividends must be paid before any dividends can be paid to common stockholders. Therefore, the preferred stockholders are entitled to $9.00 per share ($3.00 per share per year for three years) before any payment can be made to common stockholders. This leaves $1 million - ($9.00 per share x 200,000 shares) = $820,000 available for payment to preferred stockholders. Dividing $820,000 by 200,000 shares gives a maximum payment of $4.10 per share. However, since the dividend on preferred stock is usually stated as a percentage of par value, we need to know the par value of the preferred stock to calculate the maximum payment per share. Without that information, we can only choose the closest answer, which is D) $5.00 per share.