Response:
Year 1: Cumulative preferred stock dividends amount to $51,000; Common stock dividends amount to 0.
Year 2: Cumulative preferred stock dividends amount to $93,000; Common stock dividends amount to $12,000.
Year 3: Cumulative preferred stock dividends amount to $72,000; Common stock dividends equal $9,000.
Year 4: Cumulative preferred stock dividends amount to $72,000; Common stock dividends total $48,000.
Clarification:
Year 1
Total dividends distributed = $51,000
Cumulative preferred stock dividends due = 60,000 * $60 * 2% = $72,000
Paid dividends to cumulative preferred stock = $51,000
Outstanding cumulative preferred stock dividends carried over = $72,000 - $51,000 = $21,000
Common stock dividends = 0
Year 2
Total dividends distributed = $105,000
Cumulative preferred stock dividends due for year 2 = 60,000 * $60 * 2% = $72,000
Total cumulative preferred stock dividends owed = 72,000 plus the amount carried over from year 1 = $72,000 + $21,000 = $93,000
Dividends paid on cumulative preferred stock = $93,000
Dividends paid to common stock = $105,000 - $93,000 = $12,000
Year 3
Total dividends distributed = $81,000
Cumulative preferred stock dividends owed = 60,000 * $60 * 2% = $72,000
Dividends paid on cumulative preferred stock = $72,000
Dividends paid to common stock = $81,000 - $72,000 = $9,000
Year 4
Total dividends distributed = $120,000
Cumulative preferred stock dividends owed = 60,000 * $60 * 2% = $72,000
Dividends paid on cumulative preferred stock = $72,000
Dividends paid to common stock = $120,000 - $72,000 = $48,000
