Question

Curtain Co. paid dividends of $14,000; $17,500; and $21,000 during Year 1, Year 2, and Year 3, respectively. The company had 2,400 shares of 7.0%, $100 par value preferred stock outstanding that paid a cumulative dividend. The amount of dividends received by the common shareholders during Year 3 would be:

A. $2,800.B. $16,800.C. $3,500.D. $2,100.

Answer 1

Curtain Co. paid dividends of $14,000; $17,500; and $21,000 during Year 1, Year 2, and Year 3, respectively. The company had 2,400 shares of 7.0%, $100 par value preferred stock outstanding that paid a cumulative dividend. The amount of dividends received by the common shareholders during Year 3 would be $2,100.

Option D is the correct answer.

Step-by-step explanation:

100 * .007 = $7 * 2400 shares = $16,800

$14,000 - $16,800 = -$2,800 <--- this is cumulative (so it will be carried over)

$17,500 - $2,800 - $16,800 = - $2,100 <-- again, this amount will be carried over to next year.

The left over for common shareholders by year 3 = $21,000 -$2,100 - $16,800 = $2,100 .