Question

On January 2, 2014, Sunland Corporation issued 31100 shares of 5% cumulative preferred stock at $100 par value. On December 31, 2017, Sunland Corporation declared and paid its first dividend. What dividends are the preferred stockholders entitled to receive in the current year before any distribution is made to common stockholders?

Answer 1

$622,000

Step-by-step explanation:

Annual dividend = 31,100 × 5% × $100 = $155,500

Since it a cumulative preferred stock, it implies that dividend for each of the previous years when dividend were not paid by Sunland Corporation will be accumulated and paid together with the current one.

Since January 2, 2014 to December 31, 2017 is 4 years, that means dividend will be paid to cumulative preferred stock holders for 4 years as follows:

Preferred stockholders dividend for 4 years = $155,500 × 4 = $622,000

Therefore, preferred stockholders are entitled to receive $622,000 in the current year before any distribution is made to common stockholders.