Macon Corporation has 3,000 shares of $300 par value,7 percent cumulative preferred stock,and 10,000 shares of $30 par value common stock outstanding during its first five years of operation.Macon Corporation paid cash dividends as follows: 2009,$42,000; 2010,$54,000; 2011,$195,000; 2012,$90,000; 2013,$45,000.The amount of dividends received by the preferred stockholders during 2013 was

Question

Quizplus · Accepted Answer

Since the preferred stock is cumulative, any dividends not paid in previous years must be paid before common stock dividends can be paid. Therefore, we must first calculate the total dividends owed to the preferred stockholders through 2013:

Preferred dividends through 2012: 
($300 par value * 0.07 annual dividend rate) * 3,000 preferred shares = $63,000

Preferred dividends owed in 2013: 
($300 par value * 0.07 annual dividend rate) * 3,000 preferred shares = $63,000

Total preferred dividends owed through 2013: 
$63,000 + $63,000 = $126,000

Since Macon Corporation only paid $45,000 in dividends in 2013, all of this amount must go towards paying the dividends owed to the preferred stockholders. Therefore, the amount of dividends received by the preferred stockholders during 2013 was $45,000. Option B is correct.

Macon Corporation Has 3,000 Shares of $300 Par Value,7 Percent