​Electric, Inc. was incorporated on January​ 1, 2016. Electric issued​ 4,000 shares of common stock and​ 1,200 shares of preferred stock on that date. The preferred stock is​ cumulative, $100​ par, with an​ 12% dividend rate. Electric has not paid any dividends yet. In​ 2019, Electric had its first profitable​ year, and on November​ 1, 2019, Electric declared a total dividend of​ $63,000. What is the total amount that will be paid to preferred​ shareholders?

To determine the total amount that will be paid to preferred shareholders, we need to calculate the dividends that are due to them. Since the preferred stock is cumulative, any unpaid dividends from previous years must be paid out before any dividends can be paid to common shareholders.

The preferred stock has a par value of $100 and a dividend rate of 12%. This means that each share of preferred stock is entitled to receive 12% of the par value in dividends each year.

The annual dividend per share for the preferred stock is: 

12% of $100 

= $12 per share

Since Electric Inc. has 1,200 shares of preferred stock, the total annual dividend on all preferred shares is: 

1,200 shares * $12 per share 

= $14,400

Since the company has not paid dividends since its incorporation, by the end of 2019, the total dividends accrued for the preferred shareholders for the 4 years (2016, 2017, 2018, and 2019) would be: 

$14,400 per year * 4 years 

= $57,600

When Electric declared a total dividend of $63,000 in November 2019, the preferred shareholders must be paid their cumulative dividends first. The total amount that will be paid to preferred shareholders is the total cumulative preferred dividends, which amounts to $57,600.