Alpha Corp., had $15,000 of dividends in arrears for, cumulative, non-participating preferred...

Question:

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:

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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Cash Dividends & Dividend Payment

from Finance 101: Principles of Finance

Chapter 16 / Lesson 1
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