Answered: preferred stock is cumulative

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

PHSS, Inc. issues 5,000 shares of 8%, $100 par value preferred stock at the beginning of 20X1. All remaining shares are common stock. PHSS was not able to pay dividends in 20X1, but plans to pay dividends of $100,000 in 20X2.

Assuming the preferred stock is cumulative, how much of the $100,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders in 20X2?

Select one:

a. $100,000 to preferred stockholders and $0 to common stockholders

b. $20,000 to preferred stockholders and $80,000 to common stockholders

c. $60,000 to preferred stockholders and $40,000 to common stockholders

d. $80,000 to preferred stockholders and $20,000 to common stockholders.

e. $40,000 to preferred stockholders and $60,000 to common stockholders

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