Question

Curtain Co. paid dividends of $12,000; $17,000; and $18,000 during Year 1, Year 2, and Year 3, respectively. The company had 2,300 shares of 6.5%, $100 par value preferred stock outstanding that paid a cumulative dividend.

Required:
a. The amount of dividends received by the common shareholders during Year 3 would be ____________.

Answer 1

$2,150

Step-by-step explanation:

Annual cumulative preferred stock dividend = 2,300 × $100 × 6.5% = $14,950

Cumulative preferred stock dividend carried forward to year 2 = $14,950 - $12,000 = $2,950

Cumulative preferred stock dividend payable in year 2 = $14,950 + $2,950 = $17,900

Cumulative preferred stock dividend carried forward to year 3 = $17,900 - $17,000 = $900

Cumulative preferred stock dividend payable in year 3 = $14,950 + $900 = $15,850

Dividend received by common shareholders during Year 3 = $18,000 - $15,850 = $2,150