Question

Exercise 15-6

Bridgeport Limited’s ledger shows the following balances on December 31, 2020:

Preferred shares outstanding: 31,000 shares		$	837,000
Common shares outstanding: 47,000 shares			3,478,000
Retained earnings			955,330

A.) Assuming that the directors decide to declare total dividends in the amount of $477,665, determine how much each class of shares should receive if the preferred shares are cumulative and fully participating. Note that one year’s dividends are in arrears on the preferred shares, which pay a dividend of $1.35 per share.

	Preferred	Common	Total
Dividend	$	$	$

B.) Assuming that the directors decide to declare total dividends in the amount of $477,665, determine how much each class of shares should receive if the preferred shares are non–cumulative and non–participating. Note that one year’s dividends are in arrears on the preferred shares, which pay a dividend of $1.35 per share.

	Preferred	Common	Total
Dividend	$	$	$

C.) Assuming that the directors decide to declare total dividends in the amount of $477,665, determine how much each class of shares should receive if the preferred shares are non–cumulative and are participating in distributions in excess of a 9% dividend rate on the common shares. Note that one year’s dividends are in arrears on the preferred shares, which pay a dividend of $1.35 per share.

	Preferred	Common	Total
Dividend	$	$	$

Answer 1

Cumulative and fully participating
Particulars	Preferred	Common	Total
Dividend in arrears	$          41,850		$        41,850
Current dividends	$          41,850	$        173,900	$      215,750
Participating dividend 5.10%	$          42,687	$        177,378	$      220,065
Total dividend declared and paid	$        126,387	$        351,278	$      477,665

Particiapting Dividend rate = ($477665-257600) / (837000+3478000) = 5.10%

Non Cumulative and non participating
Particulars	Preferred	Common	Total
Total dividend declared and paid	$          41,850	$        435,815	$      477,665

Non-Cumulative and fully participating
Particulars	Preferred	Common	Total
Dividend in arrears	$                 -		$                -
Current dividends	$          41,850	$        313,020	$      354,870
Participating dividend 2.8458%	$          23,819	$          98,976	$      122,795
Total dividend declared and paid	$          65,669	$        411,996	$      477,665

Particiapting Dividend rate = ($477665-354870) / (837000+3478000) = 2.8458%