Red Hot Company issued and has outstanding 100,000 shares of $10 par-value common stock and 5,000 shares of $50 par-value 6 percent preferred stock. The board of directors votes to distribute $10,000 as dividends in 20X1, $20,000 in 20X2, and $100,000 in 20X3.

INSTRUCTIONS

Compute the total dividend and the dividend for each share paid to preferred stockholders and common stockholders each year under the following assumed situations:

Case A: The preferred stock is nonparticipating and noncumulative.

Case B: The preferred stock is cumulative and nonparticipating.

Analyze: If a stockholder owned 350 shares of cumulative preferred stock in 20X1, 20X2, and 20X3, what total dividends should be paid to this stockholder in the fiscal year 20X3, assuming Case B?