Curtain Co.paid dividends of $6,000,$12,000,and $20,000 during Year 1,Year 2,and Year 3,respectively.The company had 1,000 shares of 5%,$200 par value preferred stock outstanding that paid a cumulative dividend.What is the total amount of dividends paid to common shareholders during Year 3?

Question

Quizplus · Accepted Answer

Preferred dividend = 1,000 Outstanding shares × Par value of $200 per share × 5% = $10,000
Dividends in arrears at end of Year 1 = Preferred dividend of $10,000 - Dividends paid in Year 1 of $6,000 = $4,000
Dividends in arrears at end of Year 2 = Preferred dividend of $10,000 + Dividend in arrears from Year 1 of $4,000 - Dividends paid in Year 2 of $12,000 = $2,000
Year 3 Dividends to common shareholders = Dividends paid in Year 3 of $20,000 -(Preferred dividend of $10,000 + Dividend in arrears from Year 2 of $2,000)= $8,000