Perry Corporation was established on January 1 Year 1 when i

Perry Corporation was established on January 1, Year 1 when it issued 20,000 shares of $50 par, 5 percent, cumulative preferred stock and 30,000 shares of $10 par common stock. The company’s earnings history is as follows:

Year 1 $40,000 Net loss

Year 2 $110,000Net income

Year 3 $120,000 Net income

The corporation paid the maximum amount of dividends possible in each year of operation. The dividend paid to common stockholders at the end of Year 3 is

zero.

$50,000.

$40,000.

Solution

Annual preferred dividends = 20000*50*5%= $50000 Total net income available for dividends = -40000+110000+120000= $190000 Dividend paid to preferred shareholders = 50000*3 = $150000 Dividend paid to common stockholders at the end of Year 3 = 190000-150000 = $40000