20

A company has 1,000 shares of 7%, $100 par value preferred stock the company issued at the beginning of Year 1. All remaining shares are common stock. The company was not able to pay dividends in Year 1, but plans to pay dividends of $15,000 in Year 2. Required: 1. & 2. How much of the $15,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders in Year 2, assuming the preferred stock is cumulative? What if the preferred stock were noncumulative? Cumulative Non Cumulative Preferred dividends in arrears for Year 1 Preferred dividends for Year 2 Remaining dividends to common stockholders Total dividends 0 $ 0