For 2017, Strange Corporation has outstanding common stock (5,000 shares), preferred cumulative stock entitled (under the corporate charter) to dividends at the rate of $5/share before the payment of any dividend on any other class, and convertible preferred stock entitled to cumulative dividends at the rate of $3/sh. During the year, Strange made distributions on the preferred cumulative stock in the total amount of $5/share (1,000 shares) and on the convertible preferred stock in the total amount of $3/share (500 shares). The total amount distributed during 2017 on all three classes of stock was $15,000. At the end of 2017 before consideration of dividends paid during the year, Strange had $7,000 of accumulated E&P and $4,000 of current E&P. Round to whole dollars.

a. How should E&P be allocated to the distributions assuming that the common stock received a total dividend of $6,000 ($1.20/share) on March 1, preferred cumulative stock received its dividend on February 1 and the convertible preferred received its dividend on November 1?

b. Do you believe that the fact that the preferred cumulative stock is required, by charter, to its dividend before the payment of any dividend to any other class makes any difference when allocating E&P? Explain your reasoning.