Question

Last Inc., has 2,000 shares of 6%, $50 par value, cumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2013, and December 31, 2012. The board of directors declared and paid a $5,000 dividend in 2012. In 2013, $24,000 of dividends are declared and paid. What are the dividends received by the preferred stockholders in 2013?

Answer 1

Let's use this table for calculations and the answer:

	2012	2013
Total dividend paid	5,000	24,000
Divident to preferred shareholders	5,000	7,000
Divident to common shareholders	-	17,000

The annual dividend to preferred shareholders would be: 6% x 2,000 x 50 = 6,000

Since in 2012 only $5,000 was declared and paid as dividend the preferred shareholders would receive only $5,000 (with the remaining $1,000 to be paid in future)

In 2013, since the dividend declared and paid is $24,000, the company would pay $7,000 (including the arrears from last year) to preferred shareholders and the balance to common shareholders.

All of the above assumes that there's no dividend in arrears for preferred shareholders prior to 2012.