The Arcadia Company has 200,000 shares of cumulative, seven percent, $200 par value preferred stock outstanding. Last year the company failed to pay its regular dividend, but the board of directors would like to resume paying its regular dividend this year. Calculate the dividends in arrears and the total dividend that must be paid this year.

the dividends in arrears = $2,800,000

the total dividend that must be paid this year = $5,600,000

Explanation:

the dividends in arrears

Last Year = 200,000 shares × $200 × 7%

                = $2,800,000

total dividend that must be paid this year

Note : The Preference Shares are cumulative meaning that arrears in dividends are accumulated to be paid at a future date

Last Year`s Dividend          $2,800,000

Add This Year`s Dividend  $2,800,000

Total                                     $5,600,000

Dividend in arrears =$2,800,000

Total due this year = $ 5,600,000

Explanation:

Dividend payable per share = Dividend rate (%) × nominal value per share

= 7%× 200 = $14

Arrears dividend

= $14 × 200,000

= $2,800,000

Dividend due for payment this year

Dividend in arrears=2,800,000

Dividend this year =  2,800,000

Total due                    5,600,000

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