Madison Co. paid dividends of $3,000; $6,000; and $10,000 during 2012, 2013 and 2014 respectively. The company had 500 shares of preferred stock outstanding with a $10 per share cumulative dividend. The amount of dividends received by the common shareholders during 2014 would be:

A. $6,000.

B. $5,000.

C. $3,000.

D. $4,000.

The correct option is D

Explanation:

Year 2012

Balance = Preferred Stock Dividend - Total Dividend paid

= (500 * $10) - $3,000

= $5,000 - $3,000

= $2,000

Year 2013

Balance = Preferred Stock Dividend - Total Dividend paid + Balance of Year 2012

= (500 * $10) - $6,000 + $2,000

= $5,000 - $6,000 + $2,000

= $1,000

Year 2014

Common Stock Dividend = Preferred Stock Dividend - Total Dividend paid Balance of Year 2013

= (500 * $10) - $10,000 + $1,000

= $5,000 - $10,000 + $1,000

= $4,000