Corrao Foods Corporation has 2,000 shares of 6%,$50 par value,cumulative preferred stock and 150,000 shares of $1 par value common stock outstanding at December 31,2013 and December 31,2014.In 2013,a $5,000 dividend was declared and paid.In 2014,$32,000 of dividends are declared and paid.What are the dividends received by the preferred stockholders in 2014?

Question

Quizplus · Accepted Answer

The preferred stock is cumulative, meaning any unpaid dividends will accumulate and must be paid before common stock dividends can be paid. 
In 2013, $5,000 of dividends were paid, leaving $1,000 of unpaid dividends from the preferred stock. 
In 2014, the total dividends declared are $32,000. Since the preferred stockholders have priority on dividends, they must first receive the $1,000 of unpaid dividends from 2013. This leaves $31,000 available for dividends in 2014. 
To calculate the dividends received by the preferred stockholders in 2014, we can use the following formula: 
(Number of preferred shares) x (dividend rate) x (par value) = annual dividend 
(2,000) x (0.06) x ($50) = $6,000 
Therefore, the dividends received by the preferred stockholders in 2014 is $6,000.

Corrao Foods Corporation Has 2,000 Shares of 6%,$50 Par Value,cumulative