The following information is provided for Slickers, Inc. for year 2016: • 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 2014 and 2015
• Total dividends declared and paid during 2016 totaled $25,000
How much of the dividend is paid to the common stockholders during 2016 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 must be paid to the preferred stockholders before any dividends can be paid to common stockholders. The dividend in arrears for 2014 and 2015 must total $7,000 (2 years x 7% x $50 x 1,000 preferred shares). Therefore, the total dividend payable to preferred stockholders is $7,000 + ($50 x 1,000 x 7%) = $10,500. This leaves $14,500 ($25,000 - $10,500) available to be paid to common stockholders.

The Following Information Is Provided for Slickers, Inc