Answer:
Nathan's Athletic Apparel
1. Preferred Stock Dividend = $120,000 x 7% = $8,400 for one year
For two years = $16,800 ($8,400 x 2)
Common Stock Dividend = $1,200 ($18,000 - $16,800)
2.If the preferred stock were noncumulative, the dividends would be:
Preferred Stock Dividend = $120,000 x 7% = $8,400
Common Stock Dividend = $9,600 ($18,000 - $8,400)
Explanation:
Preferred Stockholders' Equity = $120,000 (1,200 x $100)
Cumulative preferred stock is the type of preferred stock that accumulates unpaid dividends. If in any year the preferred dividend was not paid, the amount that was supposed to be paid would be carried forward to the next year when dividend is paid unlike an ordinary preferred stock that does not attract the arrears of dividend that was not paid in any given year.
