Out of Africa,a multi-national corporation had a very successful year.The board of directors declared and paid a cash dividend of $50,000.The prior year,Out of Africa did not pay dividends on its 400 shares of cumulative,8%,$100 par,preferred stock.How much of the cash dividend was paid to the PREFERRED shareholders?
A)$6,400
B)$3,200
C)$8,000
D)$4,000

Question

Quizplus · Accepted Answer

The preferred shareholders are entitled to a cumulative dividend, which means that any unpaid dividends from previous years must be paid before any dividends can be paid to common shareholders. In this case, the preferred shareholders are entitled to $3,200 in unpaid dividends from the prior year (400 shares x $8 dividend per share). Therefore, the total amount of the cash dividend that was paid to the preferred shareholders is $6,400 ($3,200 + $50,000).

Out of Africa,a Multi-National Corporation Had a Very Successful Year