Question

Kuhns corp. has 200,000 shares of preferred stock outstanding that is cumulative and 100,000 common stock outstanding. the preferred dividend is $3.00 per share and has not been paid for three years. if kuhns earned $1 million this year, what could be the maximum payment to the preferred stockholders on a per share basis?

Answer 1

the preferred stok should receive at least 600,000 dollars per year

In this case, as there are dividends in arrears the preferred stock will receive $5 dollars per share

Step-by-step explanation:

per year the preferred stock should receive ut to $3 each

there are 200,000 preferred shares outstanding

200,000 shares x $3 dividend each = 600,000 dividend per year

As dividends weren't apid in he previous three year the payment for the current year would be for this dividends in arrears plus the current year. this gives a grand total of 4 years: 2,400,000 dollars

But, income for the period was for 1,000,000 so that is the maximun payment for the current year. On a per share basis:

1,000,000 / 200,000 = $5