Exercise 11-6A Accounting for cumulative preferred dividends LO 11-3

When Crossett Corporation was organized in January Year 1, it immediately issued 5,400 shares of $53 par, 5 percent, cumulative preferred stock and 11,000 shares of $6 par common stock. Its earnings history is as follows: Year 1, net loss of $14,900; Year 2, net income of $63,800; Year 3, net income of $115,200. The corporation did not pay a dividend in Year 1. Required a. How much is the dividend arrearage as of January 1, Year 2?

Dividend arrearage(. )

b. Assume that the board of directors declares a $42,120 cash dividend at the end of Year 2 (remember that the Year 1 and Year 2 preferred dividends are due). How will the dividend be divided between the preferred and common stockholders? (Amounts to be deducted should be indicated with minus sign.)

	amount	preferred	common
Total dividend declared
year 1 arrearage
year 2 preferred dividends
available for common
distributed to common
total distribution