Orleans Company was incorporated on January 1, 2012. Orleans issued 4,000 shares of common stock and 500 shares of preferred stock on that date. The preferred shares are cumulative, $100 par, with an 8% dividend rate. Orleans has not paid any dividends yet. In 2015, Orleans had its first profitable year, and on November 1, 2015, Orleans declared a total dividend of $28,000. What is the total amount that will be paid out to preferred shareholders?

Question

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The preferred shareholders are entitled to cumulative dividends of 8% on $100 par value for each of the 500 shares, which amounts to $4,000 per year. Since no dividends were paid from 2012 to 2014, the total unpaid dividends for those years is $12,000. Adding the 2015 dividend of $4,000, the total amount to be paid to preferred shareholders is $16,000.

Orleans Company Was Incorporated on January 1, 2012