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 (2007 - 2009).
Common stock,$100 par value,2,000 shares issued and outstanding.
Total dividends declared and paid in 2010 were $50,000.How much of the 2010 dividend will be paid to the common stockholders assuming the preferred stock is cumulative?
A)$12,000
B)$50,000
C)$47,000
D)$38,000

Question

Quizplus · Accepted Answer

The preferred stock annual dividend ($3,000) = Preferred stock par value (1,000 F1F1F1S1F1F1F10 $50) multiplied times 6%.The 2010 dividend payment to the preferred stockholders ($12,000) equals the annual dividend ($3,000) multiplied by four years (2007 - 2010).The 2010 dividend payment to the common stockholders ($38,000) equals the 2010 dividend declaration ($50,000) minus the dividend payment to the preferred stockholders ($12,000).

Assume the Following Capital Structure