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Robbins Petroleum Company is three years in arrears on cumulative preferred stock dividends. There are 870,000 preferred shares outstanding, and the annual dividend is $8.50 per share. The Vice-President of Finance sees no real hope of paying the dividends in arrears. She is devising a plan to compensate the preferred stockholders for 70 percent of the dividends in arrears.

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Answer:

Answer:

Arreas of preferred dividend

= $8.50 x 870,000 x 3  years

= $22,185,000

Compensation plan

= 70% x $22,185,000

= $15,529,500

Explanation:

The arrears of preferred dividend is calculated by multiplying the dividend per share by the number of preferred stocks outstanding and number of years. The compensation plan is calculated on 70% of the arrears of preferred dividend

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