Final answer:
A shareholder owning 100 shares of Emily Corporation's preferred stock will receive $1,500 in cumulative dividends for the year 2011. The correct answer to the question is B) $1,000.
Step-by-step explanation:
The student asked about the amount of dividends a shareholder owning 100 shares would receive from Emily Corporation in 2011 if the company paid $1,000,000 in dividends. Since Emily Corporation issued 10,000 shares of $100 par, 5%, cumulative, preferred stock and no dividends have been paid to preferred shareholders before, we can calculate the cumulative dividends owed.
- The annual dividend per share is 5% of the $100 par value, which equals $5.
- Therefore, the total annual dividends owed for all 10,000 shares would be $5 x 10,000 = $50,000.
- Cumulative dividends for three years (2009, 2010, and 2011) would be $50,000 x 3 = $150,000.
- Note that 100 shares would be entitled to a total of $5 x 100 = $500 annually, or $500 x 3 = $1,500 over three years.
- Since Emily Corporation is paying $1,000,000 in dividends in 2011, the preferred shareholders must be paid their cumulative dividends first, which totals $150,000.
- After the preferred shareholders are paid, if there is any remaining amount, it would be distributed to common shareholders.
Thus, a shareholder owning 100 shares will receive $1,500 in dividends for the year 2011, which corresponds to choice B) $1,000.