When Crossett Corporation was organized in January, Year $1,$ it immediately issued $4,000$ shares of $$50$ par, $6$ percent, cumulative preferred stock and $50,000$ shares of $$20$ par common stock. Its earnings history is as follows: Year $1,$ net loss of $$35,000$; Year $2,$ net income of $$125,000$; Year $3,$ net income of $$215,000.$ The corporation did not pay a dividend in Year $1.$

Required

a$.$ How much is the dividend arrearage as of January $1,$ Year $2?$

b$.$ Assume that the board of directors declares a $$40,000$ cash dividend at the end of Year $2($remember that the Year $1$ and Year $2$ preferred dividends are due$).$ How will the dividend be divided between the preferred and common stockholders?

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How much is the dividend arrearage as of January $1,$ Year $2?$

Dividend arrearage