Chambers Corporation had the following shares of stock outstanding on December 31,2013: Common stock,$100 par value,100,000 shares outstanding
Preferred stock,8 percent,$200 par value,cumulative,10,000 shares outstanding
Dividends were in arrears for 2011 and 2012.
On December 31,2013,total cash dividends of $800,000 were declared.The total amounts payable to preferred stockholders and common stockholders,respectively,are

Question

Quizplus · Accepted Answer

Since the preferred stock is cumulative, it means that any missed dividends from previous years must be paid before any dividends can be paid to the common stock. Therefore, the first $160,000 of the $800,000 declared dividends must go to the preferred stockholders to cover the arrears from 2011 and 2012. The remaining $640,000 is available to pay the common stock dividend.

To calculate the specific amounts payable to each group of shareholders:

Preferred stock: 
Dividend arrears from 2011 and 2012 = $200 x 0.08 x 10,000 x 2 years = $32,000
Preferred stock dividend for 2013 = $200 x 0.08 x 10,000 = $160,000
Total payable to preferred stock = $32,000 + $160,000 = $192,000

Common stock: 
Remaining dividends after paying preferred stock = $800,000 - $192,000 = $608,000
Dividend payable per share = $608,000 / 100,000 shares = $6.08 per share
Total payable to common stock = $6.08 per share x 100,000 shares = $608,000

Therefore, the answer is C, with the preferred stockholders receiving $192,000 and the common stockholders receiving $608,000.

Chambers Corporation Had the Following Shares of Stock Outstanding on December