Question

The following information is provided for Bold Company for the year 2017:

• Preferred stock, 7%, $50 par value, 2,900 shares issued and outstanding
• Common stock, $100 par value, 3,900 shares issued and outstanding
• Dividends in arrears for three prior years (2014­­–2016)
• Total dividends declared and paid in 2017 were $69,000.

How much of the 2017 dividend payment was paid to the preferred stockholders assuming the preferred stock is cumulative?

$10,150.

$40,600.

$28,400.

$58,850.

Answer 1

Solution: In the above question, the correct option is 3. It means $28,400.

Explation: Preferred stock dividend per year (2017) = 2,900shares X 50 X 7%

= 10,150

Cumulative preferred stock of dividend is accumulate for 2017, preferred stock dividend will be arrears of dividend for three prior years(2014-2016) PLUS current year 2017 dividend

Therefore, Total preferred dividend for 2017, = (3years X 10,150) + 10,150

= 30,450 + 10,150

= 40,600.

Common stockholder dividend payment = Total dividend paid - Total preferred dividend

= 69,000 - 40,600

= $28,400.