When Polledo Corporation was organized in January 2007, it immediately issued 5,000 shares of ($50) par, 5

Question:

When Polledo Corporation was organized in January 2007, it immediately issued 5,000 shares of $$50$ par, 5 percent, cumulative preferred stock and 10,000 shares of $$10$ par common stock. The company’s earnings history is as follows: 2007, net loss of $$15,000$ ; 2008, net income of $$60,000$ ; 2009, net income of $$95,000$. The corporation did not pay a dividend in 2007.

Required:

a. How much is the dividend arrearage as of January 1, 2008?

b. Assume that the board of directors declares a $$40,000$ cash dividend at the end of 2008 (remember that the 2007 and 2008 preferred dividends are due). How will the dividend be divided between the preferred and common stockholders?

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