A company has the following paid-in capital: Use the information above to answer

Question

A company has the following paid-in capital:

Use the information above to answer the following question. If the company pays a $35,000 dividend, and the preferred stock is cumulative and two years' dividends are in arrears, what is the amount the common stockholders will receive?

A) $35,000

B) $23,000

C) $29,000

D) $17,000

Preferred stock, 6%, $5 par value, 100,000 shares authorized, 20,000 shares issued and outstanding
$500,000 Common stock, $9 par value, 300,000 shares authorized, 110,000 shares issued and outstanding
$990,000

Explanation / Answer

Preferred dividends per year=(5*20,000)*6%=$6000

Hence total dividends to be paid to :

Preferred stock=$6000*3 years=$18000

Hence dividends to be paid to common stockholders=(35000-18000)

=$17000(D)

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