Sweet Company’s outstanding stock consists of 1,600 shares of cumulative 4% preferred stock with a $100...

Sweet Company’s outstanding stock consists of 1,600 shares of cumulative 4% preferred stock with a $100 par value and 11,600 shares of common stock with a $10 par value. During the first three years of operation, the corporation declared and paid the following total cash dividends. Dividends Declared & Paid Year 1 $ 3,600 Year 2 $ 7,600 Year 3 $ 40,000

The amount of dividends paid to preferred and common shareholders in year 3 is:

Multiple Choice

$40,000 preferred; $0 common.

$19,200 preferred; $20,800 common.

$8,000 preferred; $32,000 common.

$0 preferred; $40,000 common.

Expert Solution

Ans: $8,000 preferred; $32,000 common.

In case of cumulative preferred stock, preferred dividend which remains unpaid in one year will get cumulated for payment in next years.
	Par value per Preferred Share	Dividend Rate	Dividend per Preferred Share	Number of Preferred Shares	Annual Preferred Dividend
Annual Preferred Dividend:	$ 100.00	4.0%	$ 4.00	1,600	$ 6,400
	Total Cash Dividend Paid	Annual Preferred Dividend Due	Annual Preferred Dividend paid	Arrears of Preferred Dividends paid during the Year	Total Preferred Dividends paid during the Year	Paid to Common	Dividends in Arrears at year end
	a	b	c	d	e = c+d	e= a - c	f
Year 1	$ 3,600	$ 6,400	$ 3,600	$ -	$ 3,600	$ -	$ 2,800
Year 2	$ 7,600	$ 6,400	$ 6,400	$ 1,200	$ 7,600	$ -	$ 1,600
Year 3	$ 40,000	$ 6,400	$ 6,400	$ 1,600	$ 8,000	$ 32,000	$ -
Totals	$ 51,200	$ 19,200	$ 16,400			$ 32,000

	Class of Stock			Year 3 Dividends
	Preferred			$ 8,000
	Common			$ 32,000
	Total			$ 40,000

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ekkarill92 answered 9 months ago

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