Reference no: EM132703930

Problem - Accounting for cumulative preferred dividends

When Crossett Corporation was organized in January Year 1, it immediately issued 5,800 shares of $48 par, 7 percent, cumulative preferred stock and 11,000 shares of $10 par common stock. Its earnings history is as follows: Year 1, net loss of $17,200; Year 2, net income of $106,000; Year 3, net income of $108,500. The corporation did not pay a dividend in Year 1.

Required -

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

b. Assume that the board of directors declares a $58,976 cash dividend at the end of Year 2 (remember that the Year1 and Year 2 preferred dividends are due). How will the dividend be divided between the preferred and common stockholders?