Alpha Corporation's has 1,500 shares of $40 par,7% cumulative preferred stock and 2,200 shares of $10 par common stock.Alpha paid $10,000 in cash dividends including one-year dividends in arrears to preferred stockholders.Common stockholders will receive:

Question

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Since the preferred stock is cumulative, any missed dividends must be paid in full before any dividends are paid to common stockholders. The one-year dividend in arrears means that the preferred stockholders are entitled to receive the current year's dividend ($40 x 7% x 1,500 = $4,200) plus the missed dividend ($40 x 7% x 1,500 = $4,200) for a total of $8,400.

Since Alpha Corporation paid $10,000 in cash dividends to preferred stockholders, they have fulfilled their obligation to pay the missed dividend, leaving $1,600 ($10,000 - $8,400) for common stockholders. This means that each common stockholder will receive $0.73 ($1,600 ÷ 2,200) per share.

Alpha Corporation's Has 1,500 Shares of $40 Par,7% Cumulative Preferred