Bella, Inc., has 95,000 shares of $1.45 preferred stock outstanding in addition to its common stock. The $1.45 designation means that the preferred stockholders receive an annual cash dividend of $1.45 per share. In 2014, Bella declares an annual dividend of $503,000. The allocation to preferred and common stockholders is
Preferred dividend, (95,000 shares x $1.45 per share).............. $137,750
Common dividend (remainder: $503,000 − $137,750)............. 365,250
Total dividend........................................................................... $503,000
Answer these questions about Bella’s cash dividends.
1. How much in dividends must Bella declare each year before the common stockholders receive any cash dividends for the year?
2. Suppose Bella, Inc., declares cash dividends of $550,000 for 2014. How much of the dividends goes to preferred? How much goes to common?
3. Is Bella’s preferred stock cumulative or noncumulative? How can you tell?
4. Bella, Inc., passed the preferred dividend in 2013 and 2014. Ten in 2015, Bella declares cash dividends of $1,400,000. How much of the dividends goes to preferred? How much goes to common?