Question

The following information is provided for Bold Company for the year 2019:

• Preferred stock, 6%, $50 par value, 2,800 shares issued and outstanding
• Common stock, $100 par value, 3,800 shares issued and outstanding
• Dividends in arrears for three prior years (2016­­-2018)
• Total dividends declared and paid in 2019 were $68,000.

Assuming the preferred stock is cumulative, what amount of the 2019 dividend declaration for dividends in arrears was recorded with a debit to the Dividends payable account on the date of declaration?

Multiple Choice:

• $8,400.

• $0.

• $34,400.

• $33,600.

Answer 1

Annual preferred dividend = Number of preferred shares outstanding x Par value per preferred share x Dividend rate

= 2,800 x 50 x 6%

= $8,400

Preferred dividend was not paid in year 2016, 2017 and 2018.

Hence, in the year 2019, preferred dividend will be paid for 4 years i.e. for 2016, 2017, 2018 and 2019

Preferred dividend to be paid in 2019 = 8,400 x 4

= $33,600

Hence, dividend payable will be debited by $33,600

Fourth option is correct

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