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Curtain Co. paid dividends of $10,000; $12,500; and $14,000 during Year 1, Year 2, and Year 3, respectively. The company had 2,100 shares of 5.5%, $100 par value preferred stock outstanding that paid a cumulative dividend. The amount of dividends received by the common shareholders during Year 3 would be:

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  1. Yesterday, 21:29
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    The amount of dividends received by the common shareholders during Year 3 would be:

    $1,850

    Explanation:

    Given:

    Dividends paid:

    Year 1 = $10,000

    Year 2 = $12,500

    Year 3 = $14,000

    We are told the company had 2,100 shares of 5.5%, $100 par value preferred stock outstanding that paid a cumulative dividend.

    Therefore, the preferred dividend per year will be =

    (2,100 x $100) * 5.5%

    = $11,550 per year

    The preferred dividend is cummulative, which means that unpaid dividend would be moved over to the next year.

    Thus, preferred dividend in arrears would be:

    •Year 1 = $11,550 - $10,000

    = $1,550

    • Year 2 = $11,550+$1,550-$12,500

    = $600

    Preferred dividend in year 3 = $11,550+$600

    = $12,150

    Therefore, the amount of dividends received by the common shareholders during Year 3 would be:

    $14,000 - $12,150

    = $1,850
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