Answer:
A. The preferred stock is noncumulative and nonparticipating
preferred dividends = $100 x 2,000 x 8% = $16,000
common stocks = $90,000 - $16,000 = $74,000
Preferred dividends not paid to noncumulative preferred stocks are "lost" and will not be paid in the future.
B. The preferred stock is cumulative and nonparticipating.
preferred dividends = ($100 x 2,000 x 8%) x 3 years = $48,000
common stocks = $90,000 - $48,000 = $42,000
C. The preferred stock is cumulative and participating.
preferred dividends = [($100 x 2,000 x 8%) x 2 years] + $25,777.60 = $57,777.60
common stocks = $90,000 - $57,777.60 = $32,222.40
When preferred stocks participate in the company's earnings, they receive an additional revenue proportional to the dividends received by common stockholders.
$32,222.40 / $250,000 (common stocks) = 12.8888%
$200,000 x 12.8888% = $25,777.60
