Evergreen Building,Inc.has declared a $40,000 cash dividend to shareholders.The company has 5,000 shares of $20-par,6% preferred stock and 10,000 shares of $15-par common stock.The preferred stock is cumulative.How much will be distributed to the preferred and common stockholders on the date of payment if the preferred stock is $12,000 in arrears?

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Quizplus · Accepted Answer

Since the preferred stock is cumulative and $12,000 in arrears, the first $12,000 of the dividend must be paid to the preferred stockholders. This leaves $28,000 for the remaining shareholders. The preferred stockholders are entitled to a dividend of $12,000 + (5,000 shares x $20 x 6%) = $18,000. The remaining $28,000 - $18,000 = $10,000 will be paid to the common stockholders. Therefore, $18,000 will be distributed to the preferred stockholders and $22,000 will be distributed to the common stockholders.