Question

Luther Inc., has 2,000 shares of 6%, $50 par value, cumulative preferred stock and100,000 shares of $1 par value common stock outstanding at December 31, 2010, andDecember 31, 2009. The board of directors declared and paid a $5,000 dividend in 2009.In 2010, $24,000 of dividends are declared and paid. What are the dividends received bythe preferred stockholders in 2010?a. $17,000b. $12,000c. $7,000d. $6,000

Answer 1

c) $7,000

Step-by-step explanation:

Since the shares are cumulative preferred stock

First lets calculate the dividend receivable in 2009

Dividend 2009 = (50*2000) * 0.06 = $6000

While $5000 is paid $1000 is carried forward to next year.

For 2010, the dividend payable for preferred shares is again $6000,

So total accumulated payment is =$1000 + $6000 = $7000 in total is for the preferred stock holders.

Hope that helps.