Question

The shareholders' equity of Janeek Enterprises includes $253,600 of no par common stock and $532,300 of 5% cumulative preferred stock. The board of directors declared cash dividends of $81,900 in 2016 after paying $23,500 cash dividends in 2015. What is the amount of dividends in arrears for preferred shareholders in 2015

Answer 1

$3,115

Step-by-step explanation:

Preferred stockholders has an advantage that they are paid first when there is any dividend is announced. The residual dividend will be divided into the common stockholders. Any prior years due dividend and current years dividend associated with preferred share will be paid first.

As per given data

Preferred shares = $532,300

Dividend on preferred shares = $532,300 x 5% = $26,615 per year

As in 2015 $23,500 was declared, the dividend of $26,615 is due in respect of preferred dividend.

2015

Arrears = Amount of Preferred dividend - Dividend declared = $26,615 - $23,500 = $3,115

All the dividend of $23,500 is paid to preferred stockholders there is no dividend for common stockholders in 2015 and still there are arrears of $3,115 due in respect of preferred dividend.