Question

Sweet Company's outstanding stock consists of 1.200 shares of cumulative 4% preferred stock with a $100 per value and 10.200 shares of common stock with a $10 par value During the first three years of operation, the corporation declared and paid the following total cash dividends. year year 2 year 3 Dividend Declared 2200 $ 6, 200 $33,000 The amount of dividends paid to preferred and common shareholders in year 3 Multiple Choice $4,800 preferred $28.200 common $14.400 preferred $18.600 common SO preferred, 53300 common $6.000 preferred: $27,000 common $33.000 preferred: $0 common

Answer 1

Preferred stocks are cumulative. so arrears in dividends should be paid before paying any dividends to common stockholders

	1st Year	2nd Year	3rd Year
Preferred Dividend	$100*4%*1,200 = $4,800	$100*4%*1,200 = $4,800	$100*4%*1,200 = $4,800
Preferred Dividend paid	$                                      2,200	$                                               6,200	$4,800+$1,200 = $6,000
Preferred dividend carreid forward	$4,800 - $2,200 = $2,600	$4,800+$2,600-$6,200 = $1,200	$                                                -
Dividend available for common stock	$                                               -	$                                                        -	$33,000-$6,000 = $27,000

Answer is D. Preferred $6,000 and COmmon stock $27,000

You can reach me over comment box if you have any doubts. Please rate this answer