Baker Company reflected the following balances in the stockholders’ equity secti

Question

Baker Company reflected the following balances in the stockholders’ equity section at December 31, 2007: Common Stock, par $15, 60,000 shares outstanding; Preferred Stock, 6%, $100 par, 2,000 shares outstanding. Based on these terms, the preferred stock should receive dividends of $6 per share each year.Baker Co. has not paid any dividends since its formation on January 1, 2005. Assuming that the preferred stock is cumulative and Baker’s pays $100,000 in dividends during the current year, how much will the common stockholders receive?

Explanation / Answer

**In case of cummulativ preferred shares ,dividend for past year is paid in year of sufficient profits.

common stockholders will receive = $ 16000

Preferred stock common stock Past year dividend 2000shares *6 per share *2 years = 72000 - current year dividend 12000                        [2000*6] 100,000 -84,000 = 16000 Total dividend paid 84000 16000

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