Cumulative and non participation preferred stock

Assignment Help Operation Management

Reference no: EM13906098

A company has 2,500 shares of $50 par value, 5.0% cumulative and nonparticipation preferred stock and 25,000 shares of $10 par value common stock outstanding. The company paid total cash dividends of $6,000 in its first year of operation. The cash dividend that must be paid to preferred stockholders in the second year before any dividend is paid to common stockholders is:

a) $12,500.

b) $250.

c) $6,000.

d) $6,500.

d) $6,250.

Dividend amount is $6,250 ($2.5 x 2500 or .05 x 125,000). With a cumulative dividend do I add an additional $250? I don't understand the cumulative principle when the previous years dividend was not $6,250.

Reference no: EM13906098

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