Curtain Co paid dividends of 14000 17500 and 21000 during Ye

Curtain Co. paid dividends of $14,000; $17,500; and $21,000 during Year 1, Year 2, and Year 3, respectively. The company had 2,400 shares of 7.0%, $100 par value preferred stock outstanding that paid a cumulative dividend. The amount of dividends received by the common shareholders during Year 3 would be:

1. $2,800.

2. $16,800.

3. $3,500.

4. $2,100.

Solution

Preferred dividend/year=(2400*100)*7%=$16800/year

Since Preferred dividend is cumulative;Preferred dividend not paid for in one year would be carried over and paid for in the coming years.

Preferred dividend in arrears for :

Year 1=(16800-14000)=$2800

Year 2=(16800+2800)-17500=$2100

Hence Preferred dividend for year 3=(16800+2100)=$18900

Hence common dividend=(21000-18900) =$2100.