Question

There shall be created 100,000 shares of preferred stock, par value $100 per share, of the Company authorized to be issued pursuant to the Certificate of Incorporation designated as the “5.00% Cumulative Preferred Stock,” par value $100 per share (the “Preferred Stock”). The holders of shares of the outstanding Preferred Stock shall be entitled, when, as and if declared by the Board of Directors out of funds of the Company legally available therefor, to receive cumulative dividends at the rate per annum of 5.00% per share on the par value (equivalent to $5.00 per annum per share).

No dividend will be declared or paid upon, or any sum set apart for the payment of dividends upon, any outstanding share of Preferred Stock with respect to any dividend period unless all dividends for all preceding dividend periods have been declared and paid.

No dividends or other distributions may be declared, made or paid, or set apart for payment upon, any Common Stock, nor may any Common Stock be redeemed, purchased or otherwise acquired for any consideration by or on behalf of the Company, unless full Accumulated Dividends shall have been or contemporaneously are declared and paid. “Accumulated Dividends” shall mean, with respect to any share of Preferred Stock, as of any date, the aggregate accumulated and unpaid dividends on such share from the issue date of the Preferred Stock until the most recent dividend payment date.

Again, indicate for each year and in total how much the preferred shareholders and the common shareholders would receive in dividends. Also, calculate the cumulative unpaid preferred dividends at the end of the year.

	Year 1	Year 2	Year 3	Year 4	Year 5	Total
Funds legally available for dividends	$800,000	$1,800,800	$2,400,000	$2,800,000	$3,500,000	$11,300,000
Dividends declared	$200,000	$450,000	$600,000	$700,000	$875,000	$2,825,000
Amount paid to preferred stockholders
Amount paid to common stockholders
Cumulative unpaid preferred dividends

Answer 1

In absense of Dividend given to other stock holder. We can assume that any amount paid or declared less than 5,00,000 is always cumulative to next year.Calculation we entered in below table.

All the balance cleared in last year.