Alex Bender is the owner of noncumulative 8 percent preferred stock in the Cyclone Corporation, which had no earnings or profits in 2010. In 2011, the corporation 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 corporation earned a small profit in 2012. The directors at the end of 2012 declared a 10 percent dividend on the common stock and an 8 percent dividend on the preferred stock without paying preferred dividends for 2011.
a. Is Bender entitled to dividends for 2010? For 2011?
b. Is Bender entitled to a dividend of 10 percent rather than 8 percent in 2012?
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