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30 April, 02:52

When Crossett Corporation was organized in January Year 1, it immediately issued 4,000 shares of $50 par, 6 percent, cumulative preferred stock and 50,000 shares of $20 par common stock. Its earnings history is as follows: Year 1, net loss of $35,000; Year 2, net income of $125,000; Year 3, net income of $215,000. The corporation did not pay a dividend in Year 1. Required a. How much is the dividend arrearage as of January 1, Year 2?

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  1. 30 April, 05:46
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    The correct answer is $12,000.

    Explanation:

    According to the scenario, the given data are as follows:

    Shares issues On Jan. 1 Year 1 = 4,000 shares

    Par value of shares = $50 par

    Cumulative preferred stock = 6%

    So, we can calculate the dividend arrearage as of January 1, Year 2 by using following formula:

    Dividend as of Jan. 1, year 2 = Shares issues On Jan. 1 Year 1 * Par value of shares * Cumulative preferred stock

    = 4,000 * $50 * 6%

    = $12,000
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