Question

When crossett corporation was organized in january year 1, it immediately issued 4,700 shares of $50 par, 8 percent, cumulative preferred stock and 11,000 shares of $12 par common stock. its earnings history is as follows: year 1, net loss of $12,900; year 2, net income of $55,100; year 3, net income of $100,500. the corporation did not pay a dividend in year 1. required

how much is the dividend arrearage as of january 1, year 2?

Answer 1

The dividend arrearage for Crossett Corporation as of January 1, year 2, is $18,800. This amount is due to the holders of the preferred stock because no dividends were paid in year 1.

Step-by-step explanation:

The question asks about the dividend arrearage as of January 1, year 2, for Crossett Corporation, which issued cumulative preferred stock. Since the corporation had a net loss in year 1 and no dividend was paid, the preferred shareholders are owed a dividend before common shareholders can receive one. The dividend arrearage for the 4,700 shares of $50 par, 8 percent, cumulative preferred stock can be calculated as follows:

• Annual preferred dividend per share = $50 par value × 8% = $4.00 per share
• Total annual preferred dividend = 4,700 shares × $4.00 = $18,800
• Dividend arrearage as of January 1, year 2 = Total annual preferred dividend (since no dividend was paid in year 1) = $18,800