Rachel's Designs has 1,800 shares of 6%, $50 par value cumulative preferred stock issued at the beginning of 2019. All remaining shares are common stock. Due to cash flow difficulties, the company was not able to pay dividends in 2019 or 2020. The company plans to pay total dividends of $18,000 in 2021. How much of the $18,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders

Preferred dividend in arrears = $10,800

Preferred dividend for 2021 = $5,400

Remaining dividends to common stockholders = 1,800

Explanation:

The computation of preferred stockholders and common stockholders is shown below:-

Preferred dividend in arrears for 2019 and 2020   $10,800

(1,800 × $50 × 6% × 2)

Preferred dividend for 2021                                       $5,400

(1,800 × $50 × 6%)

Remaining dividends to common stockholders         1,800

Total dividends                                                             $18,000

Therefore in every year Cumulative dividend will arise whether paid or not.

All dividend should be paid to preferred stock, if something is left will be paid to common stockholders.

answer; risk transference;