When Crossett Corporation was organized in January, Year 1, it immediately issued 4,200 shares of $50 par, 8 percent, cumulative preferred stock and 11,500 shares of $5 par common stock. Its earnings history is as follows: Year 1, net loss of $14,000; Year 2, net income of $123,000; Year 3, net income of $207,000. 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 $54,500 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?