Curtain Co. paid dividends of $6,000; $12,000; and $20,000 during Year 1, Year 2, and Year 3, respectively. The company had 1,000 shares of 5%, $200 par value preferred stock outstanding that paid a cumulative dividend. The amount of dividends received by the common shareholders during Year 3 would be:

Question

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The annual preferred dividends each year = $200 × 1,000 shares × 5% = $10,000. In Year 1, there were $4,000 of dividends in arrears ($10,000 preferred dividends − $6,000 paid). In Year 2, there were $2,000 in arrears ($4,000 beginning + $10,000 preferred dividends − $12,000 paid). In Year 3, the preferred dividends was $10,000 + $2,000 in arrears = $12,000. The remaining $8,000 was paid to common shareholders.