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13 September, 02:19

The company had 1,600 shares of 3.0%, $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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Answers (2)
  1. 13 September, 04:39
    0
    C. $2600

    Explanation:

    First, the complete question is as follows:

    Curtain Co. paid dividends of $4,000; $5,000; and $8,000 during Year 1, Year 2, and Year 3, respectively. The company had 1,600 shares of 3.0%, $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:

    A. $4800

    B. $1000

    C. $2600

    D. $800

    Solution

    First, what is the yearly dividend for the preferred stock

    = (The Number of shares x Par value) x 3%

    = (1600 shares x $100) x 0.03

    = $4,800

    Use this value to determine the schedule of Preferrence dividend as follows:

    Year 1: Preferred dividend = $4,000,

    Preferred dividend in arrears for year 1 = Yearly dividend - paid dividend in year 1

    = $4,800 - $4,000 = $800

    Year 2: Preferred dividend = $5000

    Preferred dividend in arrears for year 2 = $4,400 + $800 - $5,000 = $600

    year 3: Preferred Dividend = Yearly dividend + dividend in arrears from year 2

    = $600 + $4,800 = $5,400

    Therefore, the dividends available to common stockholders = $8,000 - $5,400 = $2,600
  2. 13 September, 05:47
    0
    The question is incomplete! The complete question along with answer and explanation is provided below.

    Question:

    Curtain Co. paid dividends of $4,000; $5,000; and $8,000 during Year 1, Year 2, and Year 3 respectively. The company had 1,600 shares of 3.0%, $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:

    A. $4800

    B. $1000

    C. $2600

    D. $800

    Answer:

    C. $2600

    Explanation:

    Paid dividend in year 1: $4,000

    Paid dividend in year 2: $5,000

    Paid dividend in year 3: $8,000

    First we have to calculate the annual preferred dividend.

    Annual preferred dividend = $100*1,600*0.03

    Annual preferred dividend = $4,800

    Year 1:

    dividends in arrears = preferred dividend - paid dividend

    dividends in arrears = $4,800 - $4,000

    dividends in arrears = $800

    Year 2:

    dividends in arrears = previous arrears + preferred dividend - paid dividend

    dividends in arrears = $800 + $4,800 - $5,000

    dividends in arrears = $600

    Year 3:

    dividends in arrears = $600 + $4,800 = $5,400.

    paid dividend - dividends in arrears = $8000 - $5,400 = $2,600

    Hence, common shareholders received $2,600
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