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Cumulative preferred stock is a type of preferred stock that has a unique feature: the right to receive dividends, which accumulate if they are not paid in a given year. This means if Chauncey Corporation doesn't declare dividends in a specific year, the owed amount is not lost. Instead, it rolls over to future years, creating a backlog that must be cleared before any common stockholders can receive their share.
This cumulative feature protects preferred stockholders and ensures they are prioritized in dividend payment. For example, even if no dividends are declared in 2017, as in Chauncey's case, the preferred dividends due for that year are carried forward. Therefore, if dividends are declared in subsequent years, like in 2018, preferred stockholders must be paid both current and past unpaid dividends first.

Dividend per share (DPS) is a financial ratio that represents the amount of declared dividend attributed to each share of stock. To determine DPS, Chauncey Corporation must divide the total dividend allocated to a particular class of stock by the number of shares outstanding.
For example, in 2016 under Case (a), Chauncey declared a total dividend of \(69,000\). After paying \(60,000\) to preferred stockholders, the remaining \(9,000\) is allocated to common shares. Thus, the dividend per common share would be \( \frac{9,000}{90,000} = \\(0.10\). Similarly, the DPS for preferred stock is \( \frac{60,000}{20,000} = \\)3.00\). This clear formula allows shareholders to understand precisely how much income they can expect per share.

Common stock dividends are shares of the profits paid to common stockholders after fulfilling obligations to any preferred stockholders. In companies like Chauncey Corporation, preferred stockholders have a higher claim on dividends, especially if the stock is cumulative. Under Case (a), in 2016, after satisfying the preferred stockholder's dividends of \(60,000\), \(9,000\) remained for distribution among common shareholders. This prioritization means that if the company's profit distribution is limited, common stockholders may receive reduced dividends or none until the cumulative preferred dividends are fully paid.
In Case (b), common stock stockholders received no dividends in 2017 because the declared amount was fully utilized to satisfy the backlog of cumulative dividends owed to the preferred shareholders from the previous year.

The annual dividend calculation is essential for understanding how much income shareholders can count on each year. For cumulative preferred stock, like in Chauncey's case, calculating this involves multiplying the number of shares by the par value and the dividend rate. So, for 20,000 shares with a \(50\) par value and a 6% rate, the annual preferred dividend is \(20,000 \times \\(50 \times 0.06 = \\)60,000\).
This calculation sets the baseline for minimum dividend distribution each year for preferred stockholders. By understanding these annual calculations, both the companies and investors can plan financially, knowing how much to pay out or expect as income yearly. Annual dividends form the backbone of strategic finance management, particularly in dividend-focused companies.