The stockholders
Solution
60,000 x 8% x $5 = $24,000 is owed to preferred shareholders each year. With
cumulative preferred shares, preferred shareholders must be paid any dividends owed (in arrears)
before common shareholders receive dividends. 3 years x $24,000 = $72,000 owed to preferred
shareholders Also, since the preferred shares are participating, any dividends beyond the
prescribed rate (8%) are shared on a ratio basis between preferred shareholders and common
shareholders. 300,000 x 8% x $2 = $48,000 owed to common shareholders. 183,000 - 72,000 -
48,000 = $63,000 remaining to be shared 300,000 x $2 = $600,000 total par value of common
stock 60,000 x $5 = $300,000 total stated value of preferred stock 600,000 + 300,000 = $900,000
total par and stated value 63,000 remaining dividend / 900,000 = 7% participation rate for
remaining dividend 600,000 par value x 7% = $42,000 owed to common shareholders 300,000
par value x 7% = $21,000 owed to preferred shareholders Totals Preferred Dividends = 72,000 +
21,000 = $93,000 Common Dividends = 48,000 + 42,000 = c. $90,000