When Crossett Corporation was organized in January, Year 1, it immediately issued 4,100 shares of $52 par, 7 percent, cumulative preferred stock and 9,500 shares of $14 par common stock. Its earnings history is as follows: Year 1, net loss of $15,000; Year 2, net income of $123,000; Year 3, net income of $218,000. The corporation did not pay a dividend in Year 1.

Required

1. How much is the dividend arrearage as of January 1, Year 2?
2. Assume that the board of directors declares a $54,000 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?

• Required A
• Required B

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

Dividend arrearage

Assume that the board of directors declares a $54,000 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?

		Distributed to Shareholders
	Amount	Preferred	Common
Total dividend declared
Year 1 Arrearage
Year 2 Preferred dividends
Available for common
Distributed to common
Total distribution