Brickleberry has 200,000 shares of $1 par common stock outstanding and 25,000 shares of $50 par, 10% preferred stock outstanding. Brickleberry did not pay dividends in year 1 and year 2. However, there were no dividends in arrears owed to preferred shareholders prior to year 1. The preferred stock is cumulative and participating. In year 3, Brickleberry declared a $1,000,000 cash dividend. Brickleberry calculated the split between common and preferred shareholders. What did Brickleberry fo wrong?

Dividends in Arrears:

Year 1 125,000

Year 2 125,000

Owed to preferred shareholders: 125,000+125,000+125,000 = $375,000

Preferred shareholders receive $375,000

Common shareholders receive $625,000 (1,000,000 - 375,000)