The Grady Company had the following classes of stock outstanding as of December

Question

The Grady Company had the following classes of stock outstanding as of December 31, 2008: Common stock, $20 par value, 20,000 shares outstanding   preferred stock, 6 percent, $100 par value, cumulative, 2,000 shares outstanding. No dividends were paid on preferred stock for 2006 and 2007. On December 31, 2008, a total cash dividend of $200,000 was declared. What are the amounts of dividends payable on both common and preferred respectively:      A. $0 and $200,000      B. $164,000   and $36,000    C. $176,000 and $24,000   D. $188,000   and $12,000

Explanation / Answer

As The prefered Stock is cumulative in nature thus the unpaid dividends for the previous years should be paid in arrear at the time of declaration of dividend.Thus the prefered stock holders are eligible to dividends for the year 2006,2007 & 2008.

$12,000

200000

Hen ce correct option is B.

calculation of
dividend per annum Dividend per
Share no. of Shares Dividend
for prefered Stock prefered Stock $6 2000

$12,000

year prefered Stock common stock total dividend 2006 12000 2007 12000 2008 12000 164000 total 36000 164000

200000

Hen ce correct option is B.

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