When Higdon Corporation was organized in January 2016, it immediately issued 4,5

Question

When Higdon Corporation was organized in January 2016, it immediately issued 4,500 shares of $51 par, 4 percent, cumulative preferred stock and 11,500 shares of $10 par common stock. Its earnings history is as follows: 2016, net loss of $16,800; 2017, net income of $61,400; 2018, net income of $109,500. The corporation did not pay a dividend in 2016.

a.How much is the dividend arrearage as of January 1, 2017

b.Assume that the board of directors declares a $30,360 cash dividend at the end of 2017 (remember that the 2016 and 2017 preferred dividends are due). How will the dividend be divided between the preferred and common stockholders?

Explanation / Answer

a Dividend in arrears as of Jan 1,2017 =4500*51*4%= 9180 b Dividend to preferred shareholders = 9180*2= 18360 Dividend to common stockholders = 30360-18360 = 12000

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