Question

Assume the following capital structure: Preferred stock, 5%, $50 par value, 1,200 shares issued and outstanding with dividends in arrears for the three prior years. Common stock, $100 par value, 2,200 shares issued and outstanding. Total dividends declared and paid in current year were $52,000. How much of the current dividend will be paid to the preferred stockholders assuming the preferred stock is cumulative

Answer 1

$12,000

Step-by-step explanation:

The computation of the preferred dividend in the case when the preferred stock is cumulative is given below:

= Dividend percentage × par value of each share × number of shares issued × number of years

= 5% × $50 × 1,200 shares × 4 years

= $12,000

Hence, the preferred dividend in the case when the preferred stock is cumulative is $12,000