Question

Luther Inc., has 3,000 shares of 6%, $50 par value, cumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2013, and December 31, 2012. The board of directors declared and paid a $7,500 dividend in 2012. In 2013, $36,000 of dividends are declared and paid. What are the dividends received by the preferred stockholders in 2013?
a. $25,500
b. $18,000
c. $ 10,500
d. $ 9,000

Answer 1

Answer:

c. $ 10,500

Explanation:

3,000 shares at $50 yields 6% cumulative =  dividends per year

3,000 x 50 x 0.06 = $9,000 dividends per year

dividends for 2012:

7,500 - 9,000 preferred dividends = -1,500

The preferred stock accumulated 1,500 dividend to recieve in future periods

dividends for 2013:

36,000 - 9,000 preferred for 2013 - 1,500 accumulate = 25,500 available for common stock

The preferred stock reviee 9,000 + 1,500 = 10,500 for 2013