Question

In each of the following independent cases, it is assumed that the corporation has $800,000 of 5% preferred stock and $3,200,000 of common stock outstanding, each having a par value of $10. No dividends have been declared for 2019 and 2020. (a) As of 12/31/21, it is desired to distribute $250,000 in dividends. How much will the common stockholders receive if their stock is cumulative and nonparticipating

Answer 1

Answer: $120,000

Explanation:

Common stock cannot be cumulative. You most likely meant Preferred stock.

Cumulative stock will see its dividends accrued from years it was not paid to a year it can be paid.

Preferred cumulative stock = (800,000 * 5%) * 3 years including (2019, 2020 and 2021)

= 40,000 * 3

= $120,000