Question

The X Company has the following stock outstanding: 6% Preferred stock, $100 par value, cumulative Common stock, $50 par value $300,000 $600,000

Preferred stock dividends are in arrears for 2004 and 2005. If the company declares and pays $64,000 in dividends in 2006, the amount received by the preferred stockholders would be

A) $36,000.

B) $18,000.

C) $54,000.

D) $64,000.

*can I please can an explanation of how you got the answer, it would be very helpful*

Answer 1

Preferred Dividend = 300000*6% = 18000

Dividend paid to preferred shareholders = Preferred dividend *No of years (2004 to 2006)

                                                         = 18000*3

Dividend paid to preferred shareholders = 54000

So answer is c) $54000