On January 1, 2012, a company issued 10,000 shares of 10%, $10 par value cumulative preferred stock. No dividends were declared in 2012 or 2013. In 2014, the company declared a dividend of $200,000. How much of the 2014 dividend should be paid to common stockholders?

Question

Quizplus · Accepted Answer

The preferred stockholders are entitled to dividends of $10,000 per year (10% of $10 par value x 10,000 shares). Since the dividends are cumulative, the company owes $30,000 in arrears for 2012 and 2013, plus $10,000 for 2014, totaling $40,000. Therefore, $200,000 - $40,000 = $160,000 is available for common stockholders.

On January 1, 2012, a Company Issued 10,000 Shares of 10