Question

The Glendora Company has 200,000 shares of cumulative, five percent, $100 par value preferred stock outstanding. Last year the company failed to pay its regular dividend, but the board of directors would like to resume paying its regular dividend this year.Calculate the dividends in arrears and the total dividend that must be paid this year.

Answer 1

Answer:

• Dividend in arrears = $1,000,000
• Total dividend for the year = $2,000,000

Explanation:

Dividend in arrears.

Dividend for Preferred dividends is the same each year so the dividend for the previous year was:

= Number of shares * Percentage * Par value

= 200,000 * 5% * 100

= $1,000,000

Dividend to be paid this year:

This is cumulative preferred share which means that dividend in arrears and current dividend should always be paid regardless of when possible.

Dividend for this year is therefore the sum of the dividend in arrears and the dividend for the year:

= 1,000,000 + 1,000,000

= $2,000,000