Orleans Inc.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 stock is 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 common stockholders?

Question

Quizplus · Accepted Answer

The preferred stockholders are entitled to dividends for 2012, 2013, 2014, and 2015 before common stockholders receive any dividends. The annual preferred dividend is $4,000 (500 shares x $100 par x 8%). Therefore, the total preferred dividends for four years is $16,000. The remaining $12,000 of the $28,000 total dividend will be paid to common stockholders.