Problem:
Nathan's Athletic Apparel has 2,000 shares of 5%, $100 par value preferred stock the company issued at the beginning of 2014. All remaining shares are common stock. The company was not able to pay dividends in 2014, but plans to pay dividends of $22,000 in 2015.
Required:
Question 1: Assuming the preferred stock is cumulative, how much of the $22,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders in 2015?
Question 2: Assuming the preferred stock is noncumulative, how much of the $22,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders in 2015?
Note: Be sure to show how you arrived at your answer.