Ludington Corporation has 1,000 shares of 6%, $50 par value, cumulative preferred stock and 25,000 shares of $1 par value common stock outstanding on December 31, 2011 and December 31, 2012. The board of directors declared and paid a $2,000 dividend in 2011. In 2012, $12,000 of dividends are declared and paid. What are the dividends received by the common stockholders in 2012?

Question

Quizplus · Accepted Answer

Since the preferred stock is cumulative, it must receive all missed dividends before any dividends can be paid to common stockholders. In 2011, only $2,000 was paid in dividends, so the remaining $4,000 (preferred dividend of $6,000 - $2,000 paid) must be paid before any dividends can be paid to common stockholders. In 2012, $12,000 in dividends are declared and paid, so $6,000 goes to pay the remaining preferred dividends from 2011 and $6,000 goes to pay the preferred dividends for 2012. This leaves no money for common stock dividends in 2012.

Ludington Corporation Has 1,000 Shares of 6%, $50 Par Value