Curtain co. paid dividends of $10,000; $12,500; and $14,000 during year 1, year 2, and year 3, respectively. the company had 2,100 shares of 5.5%, $100 par value preferred stock outstanding that paid a cumulative dividend. the amount of dividends received by the common shareholders during year 3 would be:

The amount of dividends received by the common shareholders during Year 3 would be:

$1,850

Explanation:

Given:

Dividends paid:

Year 1 = $10,000

Year 2 = $12,500

Year 3 = $14,000

We are told the company had 2,100 shares of 5.5%, $100 par value preferred stock outstanding that paid a cumulative dividend.

Therefore, the preferred dividend per year will be =

(2,100 x $100) × 5.5%

= $11,550 per year

The preferred dividend is cummulative, which means that unpaid dividend would be moved over to the next year.

Thus, preferred dividend in arrears would be:

•Year 1 = $11,550 - $10,000

= $1,550

• Year 2 = $11,550+$1,550-$12,500

= $600

Preferred dividend in year 3 = $11,550+$600

= $12,150

Therefore, the amount of dividends received by the common shareholders during Year 3 would be :

$14,000 - $12,150

= $1,850