Wally Company has the following stock outstanding: Preferred stock: 6%, $20 par value, 2,000 shares outstanding. This preferred stock has cumulative dividend preference. Two years of preferred dividends were in arrears.
Common stock: $10 par value, 5,000 shares outstanding.
Wally issues a $30,000 dividend this year. Which of the following is true?
A. Preferred stockholders receive $4,800 in dividends this year because there are two years of dividends arrears.
B. Preferred stockholders have preference because they recelve a greater dollar amount of dividends than what the common stockholders receive.
C. Common stockholders receive $27,600 in dividends this year, after the preferred stockholders are paid first.
D. Preferred stockholders receive $7,200 in preferred dividends this year, and are paid before the common stockholders.
E. Common stockkholders receive $0 in dividends this year since there are dividends in arrears for the preferred stockholders.