Question

Burkert Company has​ 50,000 shares of​ $1 par value common stock issued and outstanding. The company also has 2 comma 000 shares of​ $100 par​ value, 5​% cumulative preferred stock outstanding. Burkert did not pay the preferred dividends in 2018 and 2019. For the common stockholders to receive a dividend in​ 2020, the board of directors must declare dividends in excess​ of:

A.

$ 20 comma 000$20,000.

B.

$ 40 comma 000$40,000.

C.

$ 30 comma 000$30,000.

D.

$ 10 comma 000$10,000.

Answer 1

Cumulative preferred stocks are stocks on which dividends are accumulated, these accumulated dividend must be paid first in case dividend is to be paid to common share holders. Thus in this case we should first pay preferred dividends of 2018 and 2019, further for year 2020 in order for common share holders to receive dividends preferred stock dividend is to be paid.

Calculation of preference divided per year:

= 2,000 shares * $100 face value * 5%

= $10,000 per year.

Thus first we need to pay the above dividends for 2018, 2019 and 2020 which would amount to $30,000 ($10,000 * 3)

Thus, correct answer is Option C.