What exactly are dividends?

Accounting question: What is the total amount of dividends that must be paid in the current year?

• I have no clue how to do this problem.. Help! 1. Welch Company has 5,000 share of $5 par, 3% preferred stock outstanding, and 25,000 shares of $2 par common stock outstanding. The preferred stock is cumulative and no dividends have been paid for the past two years. If the company wishes to distribute $2 per share to the common stockholders, what is the total amount of dividends that must be paid in the current year? a. $50,750 b. $50,000 c. $2,250 d. $52,250

• Answer:

  Anytime people ask questions like this, I feel the need to preface that you need to learn why and not just find out the answer. $2/share on the common stock with 25,000 shares is $50,000. $5 par on 5,000 shares is $25,000, of which 3% is $750. If nothing has been paid out for the last two years, you can multiply that number by 3 (Current plus two prior years). Total $2,250. Your answer is d. $52,250.