When Crossett Corporation was organized in January Year 1, it immediately issued 4,000 shares of $50 par, 6 percent, cumulative preferred stock and 50,000 shares of $20 par common stock. Its earnings history is as follows: Year 1, net loss of $35,000; Year 2, net income of $125,000; Year 3, net income of $215,000. The corporation did not pay a dividend in Year 1. Required a. How much is the dividend arrearage as of January 1, Year 2?

Based on the information given the amount of dividend arrearage as of January 1, Year 2 is $12,000.

Using this formula

Dividend  arrearage=Shares issued× Par value× Rate

Where:

Shares issued=4,000 shares

Par value=$50 par

Rate=6% or 0.06

Let plug in the formula

Dividend  arrearage=4,000×$50×0.06

Dividend  arrearage=$12,000

Inconclusion the amount of dividend arrearage as of January 1, Year 2 is $12,000.

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The correct answer is $12,000.

Explanation:

According to the scenario, the given data are as follows:

Shares issues On Jan.1 Year 1 = 4,000 shares

Par value of shares = $50 par

Cumulative preferred stock = 6%

So, we can calculate the dividend arrearage as of January 1, Year 2 by using following formula:

Dividend as of Jan.1, year 2 = Shares issues On Jan.1 Year 1 × Par value of shares × Cumulative preferred stock

= 4,000 × $50 × 6%

= $12,000

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