Assume the following capital structure: Preferred stock, 6%, $50 par value, 1,000 shares issued and outstanding with dividends in arrears for three prior years (2011-2013).
Common stock, $100 par value, 2,000 shares issued and outstanding.
Total dividends declared and paid in 2014 were $50,000. How much of the 2014 dividend will be paid to the preferred stockholders assuming the preferred stock is cumulative?
A) $12,000.
B) $3,000.
C)$47,000.
D)$38,000.

Question

Quizplus · Accepted Answer

The preferred stockholders are owed dividends for three prior years plus the current year. Each year, they are entitled to 6% of $50 par value per share, which is $3 per share. For 1,000 shares, this is $3,000 per year. For four years (2011-2014), this totals $12,000.

Assume the Following Capital Structure: Preferred Stock, 6%, $50 Par