Slickers, Inc. had the following capital structure during 2014: Preferred stock, 7%, $50 par value, 1,000 shares issued and outstanding with dividends in arrears for 2012 and 2013.
Common stock, $100 par value, 2,000 shares issued and outstanding.
The total dividends declared and paid during 2014 totaled $25,000. How much of the dividend is paid to the common stockholders during 2014 assuming the preferred stock is cumulative?
A) $3,500.
B) $7,000.
C)$22,500.
D)$14,500.

Question

Quizplus · Accepted Answer

Explanation: The preferred stock dividends for 2012 and 2013 are in arrears, so they must be paid first. The annual preferred dividend is 7% of $50 par value, which is $3.50 per share. For 1,000 shares, this is $3,500 per year. For 2012 and 2013, the total arrears is $7,000 ($3,500 x 2). Adding the 2014 preferred dividend of $3,500, the total preferred dividends to be paid is $10,500. The remaining $14,500 ($25,000 - $10,500) is paid to the common stockholders.