Alpha Corp., had $15,000 of dividends in arrears for, cumulative, non-participating preferred stock as of January 1,2018. This value of dividend in arrears was for the fiscal years 2016 & 2017. During fiscal year 2018, common shareholders received a cash dividend distribution. No additional shares of preferred stock were issued during fiscal years 2017 & 2018. Use this information to determine the dollar amount of dividends that was paid to preferred shareholders during fiscal year 2018.
Preferred stock has less risk than common stock because its claim ranks higher in the event of bankruptcy. It has four common types which are cumulative , redeemable, convertible and participating.
Answer and Explanation:
Preferred Dividends that should be paid each year is $15,000 if there are dividends available
2018 Preferred DIvidends Paid = Preferred Dividends in Arrears + Current Preferred Dividends
2018 Preferred DIvidends Paid = $15,000 + $15,000
2018 Preferred DIvidends Paid = $30,000
Current year dividends and dividends in arrears are assumed paid because before any common shareholder can receive a dividend preferred stock must be paid first.
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from Finance 101: Principles of FinanceChapter 16 / Lesson 1