Paul Bunyan is the owner of noncumulative 8 percent preferred stock in the Broadview which had no earnings or profits in 2012. In 2013, the had large profits and a surplus from which it might properly have declared dividends. However, the directors refused to do so, using the surplus instead to purchase goods necessary for the corporation’s expanding business. The earned a small profit in 2014. The directors at the end of 2014declared a 10 percent on the and an 8 percent on the preferred stock without paying preferred dividends for 2013.
a. Is Bunyan entitled to dividends for 2012? For 2013?
b. Is Bunyan entitled to a of 10 percent rather than 8 percent in 2014?
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