Answer:
C. $2600
Explanation:
First, the complete question is as follows:
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
Solution
First, what is the yearly dividend for the preferred stock
= (The Number of shares x Par value) x 3%
= (1600 shares x $100) x 0.03
= $4,800
Use this value to determine the schedule of Preferrence dividend as follows:
Year 1: Preferred dividend = $4,000,
Preferred dividend in arrears for year 1 = Yearly dividend - paid dividend in year 1
= $4,800 - $4,000 = $800
Year 2: Preferred dividend = $5000
Preferred dividend in arrears for year 2= $4,400 + $800 -$5,000 = $600
year 3: Preferred Dividend = Yearly dividend + dividend in arrears from year 2
= $600 + $4,800 = $5,400
Therefore, the dividends available to common stockholders = $8,000- $5,400 = $2,600
