Question

Brewer Inc. has 5,000 shares of 8%, $50 par value, cumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2014, and December 31, 2013. The board of directors declared and paid a $15,000 dividend in 2013. In 2014, $60,000 of dividends are declared and paid. What are the dividends received by the preferred stockholders in 2014?a. $35,000.b. $30,000.c. $25,000.d. $20,000.

Answer 1

Answer:

option 3 is correct answer that is $ 25000

Explanation:

Annual dividend paid to stakeholder = 5000\times $50\times 8% =$20,000

Dividend declared and paid in 2013 = $15,000

Preferred dividend = $20,000 -$15,000

                                = $5,000

since the available stocks are cumulative, No dividend has paid to common stockholders in the year  2014 until dividends in 2013 and annual dividends for the year  2014 are paid in full

therefore, $60,000 dividends declared and paid in 2014, the preferred stock holders will receive $5000 for 2013 dividend  and $ 20,000 for 2014 dividends

total dividends received by preferred stock holder in 2014 $5000 + $20,000

= $25,000