Sweet Companys outstanding stock consists of 1500 shares of

Sweet Company\'s outstanding stock consists of 1,500 shares of cumulative 5% preferred stock with a $100 par value and 11,500 shares of common stock with a $10 par value. During the first three years of operation, the corporation declared and pald the following total cash diMdends year 1 year 2 year 3 Dividend Declared 3,50e $7,500 $39,500 The amount of divldends pald to preferred and common shareholders In year 3 1s Multiple Cnoice $11,500 preferred; $28,000 common. $7,500 preferred: $32,000 common. $22,500 preferred: $17,000 common. $39,500 preferred; $0 common $0 preferred; S39,500 common.

Solution

So the correct answer is A.

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Pls note that the preferred stock is cumulative.

Annual dividend on preferred stock is = (100 * 0.05) * 1500

                                                                    = 5 * 1500

                                                                   = $7500

In year 1 only $3500 cash dividend was paid so, the remaining amount will be accumulated and will be paid later. the amount that will be paid later on preferred stock

= 7500 – 3500 = $4000

In year 2 $ 7500 was paid.

In year 3 Total cash dividend was paid = $ 39500

We know that the preferred stock holders are paid first, so the amount paid to preferred stock holders is = 4000 + 7500 = 11500

Remaining amount will be paid to the common stock holders = 39500 - 11500 = $28000

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Hope this answer your query.

Feel free to comment if you need further assistance. J