Answer: Preferred Shareholders will receive $5,800 and Common Shareholders will receive $11,400 in dividends.
Explanation:
With Cumulative Preferred Shares, their dividends must always be paid and if they cannot be paid, they are accrued until such a time as they can be paid.
Vaughn, Inc. has 2400 shares of 4%, $50 par value, cumulative preferred stock which means that the dividends due on them are,
= 2,400 * 50 * 4%
= $4,800
The board of directors declared and paid a $3,800 dividend in 2019 which is $1,000 less than the total amount of dividends to be paid to the preferred shareholders.
That means that the entire $3,800 in 2019 went to Preferred Shareholders and they are infact still owed $1,000.
In 2020 therefore their dividend payment should be,
= 4,800 + 1,000
= $5,800
Common Shareholders will receive,
= 17,400 - 5,800
= $11,600
Preferred Shareholders will receive $5,800 and Common Shareholders will receive $11,400 in dividends in 2020.
