Cumulative preferred stockholders receive 170 per share Ther

Cumulative preferred stockholders receive $1.70 per share. There are 20,000 shares outstanding. For the last 3 years, no dividends were paid out. This year, $200,000 is paid out in dividends. How much dividends will be paid out to the common stockholders?

Solution

If a preferred stock is designated as cumulative, its holders must receive any past dividends that had been omitted on the preferred stock and its current year dividend, before common stockholders are paid any dividends. (A corporation might omit its dividends because it is suffering operating losses and has little cash available.) If a corporation omits a dividend on its cumulative preferred stock, the past, omitted dividends are said to be \"in arrears\" and this must be disclosed in the notes to the financial statements.

Hence ,total years for which dividend to be paid = 3+1 = 4yrs

value of dividend= 1.7*20000*4 =136000$