Halverstein Company's outstanding stock consists of 7,000 shares of cumulative 5% preferred stock with a $10 par value and 3,000 shares of common stock with a $1 par value.During the first three years of operation,the corporation declared and paid the following total cash dividends.
$$\begin{array}{l}
&\text { Dividend Declared }\
\text { Year } 1 & \$ 0 \
\text { Year } 2 & \$ 6,000 \
\text { Year } 3 & \$ 32,000
\end{array}$$
The amount of dividends paid to preferred and common shareholders in Year 2 is:

Question

Halverstein Company's outstanding stock consists of 7,000 shares of cumulative 5% preferred stock with a $10 par value and 3,000 shares of common stock with a $1 par value.During the first three years of operation,the corporation declared and paid the following total cash dividends.
$$\begin{array}{l}
&\text { Dividend Declared }\ 
\text { Year } 1 & \$  0 \
\text { Year } 2 & \$  6,000 \
\text { Year } 3 & \$  32,000
\end{array}$$
The amount of dividends paid to preferred and common shareholders in Year 2 is:

Quizplus · Accepted Answer

In Year 2, the preferred shareholders are entitled to their cumulative dividends for both Year 1 and Year 2 before any dividends can be paid to common shareholders. The annual preferred dividend is 7,000 shares * $10 par value * 5% = $3,500. For two years, this totals $7,000. Since only $6,000 was declared, all of it goes to the preferred shareholders, leaving nothing for the common shareholders.

Halverstein Company's Outstanding Stock Consists of 7,000 Shares of Cumulative