Question

Maria Inc’s share capital consists of:

1. 2,000 preferred shares outstanding, $6.50 per share dividend, and a $100 stated (par) value;

2. 5,000 common shares outstanding for which $300,000 was received.

Assume that $88,000 is available for dividend distribution. Preferred shares have not been paid for the two Preceding years.

Required:

For each situation below, state how much of the $88,000 will be distributed to each share class.

1. Pref erred shares are cumulative and non-participating (3 mark)
2. Pref erred shares are cumulative and participating

Answer 1

a.

Particulars	Preferred	Common	Total
Dividend in arrears	$   26,000		$      26,000
Current dividends (preferred)	$   13,000		$      13,000
Balance to Common Stockholders		$   49,000	$      49,000
Total dividend declared and paid	$   39,000	$   49,000	$      88,000

b.

Particulars	Preferred	Common	Total
Dividend in arrears	$   26,000		$      26,000
Current dividends	$   13,000	$   19,500	$      32,500
Participating dividend 5.9000%	$   11,800	$   17,700	$      29,500
Total dividend declared and paid	$   50,800	$   37,200	$      88,000

Participating Dividend rate = ($88000-26000-32500) / (200000+300000) = 5.90%

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