MeFirst Corporation has a cumulative preferred share issue that is suppose to pay a quarterly dividend of $2.MeFirst failed to pay 3 consecutive dividends to investors and then managed to pay a common share dividend the very next quarter.How much cash must MeFirst have paid to each preferred share holder at that time?

Question

Quizplus · Accepted Answer

The preferred shares are cumulative, meaning that missed dividends must be paid out to shareholders before any common dividends are paid out. Since three consecutive dividends were missed, MeFirst would have to pay out $6 per share ($2 per quarter x 3 quarters) to each preferred shareholder before paying any common dividends. Therefore, the total dividend payment to each preferred shareholder would be $8 ($6 in missed dividends + $2 in current dividend).

MeFirst Corporation Has a Cumulative Preferred Share Issue That Is