Accounting for cumulative preferred dividends
When Polledo Corporation was organized in January 2012, it immediately issued 5,000 shares of $50 par, 5 percent, cumulative preferred stock and 10,000 shares of $10 par common stock. The company’s earnings history is as follows: 2012, net loss of $15,000; 2013, net income of $60,000; 2014, net income of $95,000. The corporation did not pay a dividend in 2012.
Required
a.How much is the dividend arrearage as of January 1,2013?
b. Assume that the board of directors declares a $40,000 cash dividend at the end of 2013 (remember that the 2012 and 2013 preferred dividends are due). How will the dividend be divided between the preferred and common stockholders?
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