From its inception through the year of 2017,First Mart,Inc.was profitable and made strong dividend payments each year.In the year 2018,First Mart had major losses and paid no dividends.In 2019,the company started making large profits again,and they were able to pay dividends to all shareholders-both common and preferred.There are 2000 shares of cumulative,10% preferred stock outstanding.The preferred stock has a par value of $100.What is the total amount of dividends that should be paid to the preferred stockholders in December,2019?

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Quizplus · Accepted Answer

Cumulative preferred stock means that if any dividends are missed, they must be paid out to preferred shareholders before any dividends can be paid to common shareholders. Since dividends were not paid in 2018, the company owes an additional year of dividends to preferred shareholders. The annual dividend per share is 10% of the $100 par value, which is $10 per share. With 2000 shares, the annual dividend is $20,000. For two years (2018 and 2019), this totals $40,000.

From Its Inception Through the Year of 2017,First Mart,Inc