Sweet Company\'s outstanding stock consists of 100 shares of cumulative 6% prefe

Question

Sweet Company's outstanding stock consists of 100 shares of cumulative 6% preferred stock with a S100 par value and 10,100 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 Dividend year 1 year 2 year 3 2,180 $ 6,100 $32,580 The amount of dividends paid to preferred and common shareholders in year 3 is Multiple Choice $11,600 preferred, $20.900 common $6.600 proferred, $25,900 common $13 800 preferred, $12.700 common. $32 500 prelerred, $O common S0 preferred, $32.500 common KPrex60 of 100 Next >

Explanation / Answer

Preferred dividend/year=(1100*100)*6%=$6600/year

Since preferred dividend is cumulative;dividend not paid for in one year is carried over to the next year.

Any balance left over is paid over to common stockholders.

Dividend in arrears for preferred stock for:

Year 1=(6600-2100)=$4500

Year 2=4500+(6600-6100)=$5000

Hence dividend paid to :

Preferred stock in year 3=5000+6600=$11600

Common stock=(32500-11600)=$20900

Hence the correct option is A.

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