Chegg "Topper Corporation has 130,000 shares of $1 par value common stock and 92,000 shares of cumulative 8.6%, $100 par preferred stock outstanding. Topper has not paid a dividend for the prior year. If Topper declares a $1.95 per common share dividend this year, what will be the total amount they must pay their shareholders?"

Total divided = $1,761,800

Explanation:

The cumulative preference shares entire the investors to fixed amount of dividend. Where dividends are not paid during an accounting period, the unpaid dividend are carried forward and paid in arrears when profits become available in following accounting period.

Hence, before Chegg would pay common dividend the arrears of preference dividend must first be paid.

Preferred dividend = Dividend rate * Nominal value

Prior year Preferred dividend = 8.6% * 100 * 92,000 = $791,200

Current year dividend = 8.6% * 100 * 92,000 = $791,200

Common dividend = Div per share * units of common stock

Current year Common dividend = $$1.95 * 130,000 = $179,400

Total dividend = $791,200 + $791,200 + $179,400 = $1,761,800

Total divided = $1,761,800