Question

Company A. provided the following information for fiscal year 2019:

Common stock, $2 par value, 100,000 shares issued and outstanding

Preferred stock, 8%, $100 par value, 5,000 shares issued and outstanding

Total dividends declared and paid in 2019: $180,000

Dividends in arrears for 2017 and 2018

  
Assuming the preferred stock is cumulative, what is the total amount of dividends paid to the preferred stockholders in the year 2019?

		$180,000
		$60,000
		$40,000
		$140,000
		$120,000

Answer 1

Answer)

Calculation of total dividends paid to preferred stock in the year 2019

Since preferred stock is cumulative, dividend for the year 2017 and 2018 in arrears as well as dividend for current year will be paid first and balance (if any) will be paid to common stock.

Amount of dividend on preferred stock = Number of shares X par value per share X rate of dividend X 3 years

                                                                           = 5,000 shares X $ 100 par value X 8% X 3 years

                                                                           = $ 120,000

Therefore total amount of dividends paid to preferred stock in the year 2019 is $ 120,000