A company has common stock and cumulative preferred stock. The preferred stock is 4%, $10 par, and there are 25,000 shares outstanding. The company didn't paydividends in the previous two years. In the current year, the company declares dividends of $37,000.

Required:

Determine the amount of current year dividends allocated to common stockholders. $

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First, notice that the preferred stock is cumulative. This means that the stock has a right to receive regular dividends that were not declared (paid) in the 2 prior years. Determine what amount of current dividends that preferred stock should receive per year. To do this you multiply the dividend percentage by the equity value, which is the number of shares times the par value per share. Common stockholders receive the amount remaining after subtracting the current and arrears dividends from the dividends declared.