Ramona, inc. has 2,500 shares of 6%, $100 par, cumulative preferred stock and 80,000 shares of $4 par common stock outstanding. last year the board of directors declared and paid a $5,000 dividend. this year the dividend declared and paid was $30,000. what amount of this dividend will be paid to the preferred stockholders?

$25,000

Explanation: Before the company pays any dividends out for the current year they must pay any dividends that are in arrears, or owed from the prior years.

In this case, the annual dividend on the preferred stock is 2,500 shares x $100 par value x 6% dividend rate, which equals $15,000. So the preferred stockholders get the first $15,000 each year.

Last year there was only $5,000 paid. Since they have to pay the preferred stockholders for last year first, the remaining $10,000 that they owe from last year will be paid. After last year’s is paid up to date, then the $15,000 for this year will be paid. $10,000 + $15,000 = $25,000, which is the amount that the preferred stockholders will get.

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