Question

When Crossett Corporation was organized in January Year 1, it immediately issued 5,700 shares of $46 par, 6 percent, cumulative preferred stock and 9,000 shares of $7 par common stock. Its earnings history is as follows: Year 1, net loss of $17,700; Year 2, net income of $62,500; Year 3, net income of $110,100. The corporation did not pay a dividend in Year 1.

Required
a. How much is the dividend arrearage as of January 1, Year 2?
  

b. Assume that the board of directors declares a $42,964 cash dividend at the end of Year 2 (remember that the Year 1 and Year 2 preferred dividends are due). How will the dividend be divided between the preferred and common stockholders? (Amounts to be deducted should be indicated with minus sign.)

Answer 1

a.
Dividend per year for preferred stockholders = Shares of preferred stock * Par value * Dividend % = 5700 * 46 * 6%	15732
Dividend arrearage as of January 1, year 2	15732

b.
		Distribution to stockholders
	Amount	Preferred	Common
Total dividend declared	42964
Year 1 Arrearage		15732	0
Year 2 Preferred dividends		15732	0
Available for common	11500
Distributed to common		0	11500
Total distribution		31464	11500