Hello Bradley,
One major characteristic of Preferred Stock is the right "But not the obligation" to receive a dividend before the common stock. In this meaning, the issuer has
to pay the dividend (Interest) case of cash availability, and
to defer the accrued dividend if no cash available. It is the direct definition of "Accumulative Rights".
Preferred stock has the form of debt in this meaning (Interest Accrual), while has no obligation of payment if there is no declaration of dividends (Equity form).
"In arrears" of above calculated $300,000 should be paid in year 5 before any other dividends "Case of available cash", and can be deferred along with year's 5 dividend to year 6 and so on ... if no cash available
Conclusion: At any case, we should account for accrued dividends despite of the declaration announcement.
For more info, please check this links:
Kind regards
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Samer Ahmad, FMVA, SCA
Kuwait
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Original Message:
Sent: 05-25-2020 03:42 PM
From: Bradley Kilbreth
Subject: book value per share question
Maga Corp.'s stockholders' equity at December 31, Year 4, is comprised of the data shown here.
Dividends on preferred stock have been paid through Year 3 but have not been declared for Year 4. At December 31, Year 4, Maga's book value per common share was: $5.5
My question is that if preferred stock dividends had been declared for Year 4, would they still be subtracted out of total stockholders equity?? Thanks
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Bradley Kilbreth
Student
Manchester NH
United States
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