The corporate charter of Pinkston Corporation authorizes the issuance of 25,000 shares of 5% cumulative, preferred stock, $20 par, and 200,000 shares of $10 par common stock. At the end of the current year, the titles and balances of stockholders' equity accounts are as follows:Pinkston declared dividends of $120,000 for the current year.Required:a) What is the amount of the annual dividend per share for preferred stock?b) If there are two years of preferred dividends in arrears at the beginning of the current year, what total amount of dividends will be paid to the preferred shareholders?c) What total amount will be paid to the common shareholders if

Question

there are two years of preferred dividends in arrears at the beginning of the year?

What will be an ideal response?

Answer 1

a) $1 per share
Dividend per share of preferred stock = Par value of $20 per share × 5% = $1 per share

b) $75,000
Cumulative dividends that have not been paid are called dividends in arrears. Since no dividends were paid to preferred stockholders in Year 1 or 2, there are two years of dividends in arrears.
Amount of preferred dividend = Par value of $20 × 5% × 25,000 shares = $25,000
Dividend paid to preferred shareholders = Dividends in arrears of $50,000 (or $25,000 per year × 2 years) + Current year's dividends of $25,000 = $75,000

c) $45,000 
 Dividend paid to common shareholders = Total dividend of $120,000 ? Dividends paid to Preferred stockholders of $75,000 = $45,000