When Higdon Corporation was organized in January 2014, it immediately issued 10,000 shares of $50 par, 5 percent, cumulative preferred stock and 15,000 shares of $10 par common stock. The company’s earnings history is as follows: 2014, net loss of $18,000; 2015, net income of $110,000; 2016, net income of $90,000. The corporation did not pay a dividend in 2014.
a. How much is the dividend arrearage as of January 1, 2014?
b. Assume that the board of directors declares a $65,000 cash dividend at the end of 2015 (remember that the 2014 and 2015 preferred dividends are due). How will the dividend be divided between the preferred and common stockholders?