When Crossett Corporation was organized in January, Year 1, it immediately issued 4,400 shares of $50 par, 4 percent, cumulative preferred stock and 9,000 shares of $13 par common stock. Its earnings history is as follows: Year 1, net loss of $16,000; Year 2, net income of $123,000; Year 3, net income of $205,000. 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 $53,500 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?