As of 2017, Buttle Corp. has $10 par, 2% preferred stock, 6,500 shares outstanding, and $1 par common stock with 32,000 shares outstanding. The preferred stock is cumulative and preferred stockholders last received a dividend in 2014.
If the company wants to distribute $4 per share to the common stockholders in 2017, what is the total amount of dividends that the company must pay at the end of the current year?
A) $129,300
B) $128,000
C) $ 3,900
D) $131,900
E) None of the above

Question

Quizplus · Accepted Answer

The company must first pay the preferred stockholders for the years 2015, 2016, and 2017. The annual dividend for preferred stock is 2% of $10 par value, which is $0.20 per share. For 6,500 shares, this is $1,300 per year. For three years, this totals $3,900. Then, the company can pay $4 per share to 32,000 common stockholders, totaling $128,000. The total amount of dividends is $3,900 + $128,000 = $131,900.