The question is incomplete! The complete question along with answer and explanation is provided below.
Question:
Curtain Co. paid dividends of $4,000; $5,000; and $8,000 during Year 1, Year 2, and Year 3 respectively. The company had 1,600 shares of 3.0%, $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:
A. $4800
B. $1000
C. $2600
D. $800
Answer:
C. $2600
Explanation:
Paid dividend in year 1: $4,000
Paid dividend in year 2: $5,000
Paid dividend in year 3: $8,000
First we have to calculate the annual preferred dividend.
Annual preferred dividend = $100*1,600*0.03
Annual preferred dividend = $4,800
Year 1:
dividends in arrears = preferred dividend - paid dividend
dividends in arrears = $4,800 - $4,000
dividends in arrears = $800
Year 2:
dividends in arrears = previous arrears + preferred dividend - paid dividend
dividends in arrears = $800 + $4,800 - $5,000
dividends in arrears = $600
Year 3:
dividends in arrears = $600 + $4,800 = $5,400.
paid dividend - dividends in arrears = $8000 - $5,400 = $2,600
Hence, common shareholders received $2,600