The following information is provided for Slickers,Inc.for year 2019: • Preferred stock,7%,$50 par value,1,000 shares issued and outstanding
• Common stock,$100 par value,2,000 shares issued and outstanding
• Dividends in arrears for 2017 and 2018
• Total dividends declared and paid during 2019 totaled $25,000
-
How much of the dividend is paid to the common stockholders during 2019 assuming the preferred stock is cumulative?
A)$3,500.
B)$7,000.
C)$22,500.
D)$14,500.

Question

Quizplus · Accepted Answer

Since the preferred stock is cumulative, the dividends in arrears for 2017 and 2018 must be paid first before any dividends are paid to common stockholders. This means that $7,000 (7% x $50 x 1,000) must be paid to preferred stockholders for each of the two years, for a total of $14,000.

The remaining $11,000 ($25,000 - $14,000) can then be paid to the common stockholders. Therefore, the amount of the dividend paid to the common stockholders during 2019 is $11,000.

Thus, the correct answer is D) $11,000.

The Following Information Is Provided for Slickers,Inc