Alloy Corporation has 25,000 shares of $1.40 preferred stock outstanding in addition to its common stock. The $1.40 designation means that the preferred stockholders receive an annual cash dividend of $1.40 per share. In 2021, Alloy declares an annual dividend of $500,000. The allocation to preferred and common stockholders is: 

Answer these questions about Alloy’s cash dividends.

1. How much in dividends must Alloy declare each year before the common stockholders receive any cash dividends for the year?

2. Suppose Alloy declares cash dividends of $200,000 for 2021. How much of the dividends goes to preferred shareholders? How much goes to common shareholders? 

3. Is Alloy’s preferred stock cumulative or noncumulative? How can you tell?

4. Alloy passed the preferred dividend in 2020 and 2021. Then in 2022, Alloy declares cash dividends of $800,000. How much of the dividends goes to preferred shareholders? How much goes to common shareholders?

Transcribed Image Text:

Preferred dividend (25,000 shares × $1.40 per share.................. Common dividend (remainder: $500,000-$35,000). Total dividend.......... $ 35,000 465,000 $500,000