Question

Kuhns Corp. has 160,000 shares of preferred stock outstanding that is cumulative and 100,000 common stock outstanding. The preferred dividend is $5.50 per share and has not been paid for 3 years. If Kuhns earned $1.70 million this year, what could be the maximum payment to the preferred stockholders on a per share basis

Answer 1

$10.63 is the maximum per share dividend to be paid to preferred stockholders.

Step-by-step explanation:

3 years dividend=$5.50*160,000*3

=$2,640,000

Since preferred dividends in arrears is more than the net income,it implies that the whole earnings would be used in settling the dividends with no dividends left for common stockholders,as a result of the point above,the maximum payment to the preferred stockholders on a per share basis is computed thus:

per share dividend=$1,700,000/160,000

=$10.63