Question

Halverstein Company's outstanding stock consists of 12600 shares of cumulative 5% preferred stock with a $10 per value and 5.400 shares of common stock with a $1 par value. During the first three years of operation the corporation declared and paid the following total cash dividends Year 1 Year 2 Dividend Deglared $ 0 $10,300 $45.000 The amount of dividends paid to preferred and common shareholders in Year 2 Multi Choice O 6.300 preferred: 54,500 common O 15.400 referred: 1.600 common O O o d 10. Bonon O 10.00 petere c on O prore .com

Answer 1

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

= 12,600 x 10 x 5%

= $6,300

Since preferred shares are cumulative, hence preferred dividend not paid in year 1 will be paid in year 2.

Total dividend paid in year 2 = $10,800

The Total dividend paid in year 2 of $10,800 belongs to preferred stockholders i.e $6,300 dividend in arrears for year 1 and remaining $4,500 for the year 2.

Hence, no dividend will be paid to common stockholders in year 2.

Fourth option is correct.

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