Question

Garda World Security Corporation has the following shares, taken from the equity section of its balance sheet dated December 31, 2020.

Preferred shares, $4.58 non-cumulative,
55,000 shares authorized and issued*	$	3,520,000
Common shares,
90,000 shares authorized and issued*		1,440,000

*All shares were issued during 2018.

During its first three years of operations, Garda World Security Corporation declared and paid total dividends as shown in the last column of the following schedule.

Required:
Part A
1. Calculate the total dividends paid in each year to the preferred and to the common shareholders.

Total Dividend 2018$ 170,000

2019 $410,000

2020 $570,000

2. Calculate the dividends paid per share to both the preferred and the common shares in 2020. (Round the final answers to 2 decimal places.)

Part B
1. Calculate the total dividends paid in each year to the preferred shares and to the common shareholders assuming preferred shares are cumulative.

Total for three years$1,150,000

Total Dividend 2018$ 170,000

2019 $410,000

2020 $570,000

2. Calculate the dividends paid per share to both the preferred and the common shares in 2020 assuming preferred shares are cumulative. (Round the final answers to 2 decimal places.)

Answer 1

Part A(1) – Preferred Shares are non cumulative

Non Cumulative Preferred Shares means the dividends are not accumulated. It means if the company paid dividend in any year, the dividends are paid first to preferred shareholders and thereafter to common shareholders. In case dividend is not paid in the year then preferred dividend is not accumulated.

	Dividend per Preferred Share	Number of Preferred Shares	Preferred Dividend
Annual Preference Dividend	$4.58	55000	$251,900
	Total Cash Dividend Paid	Paid to Preferred	Paid to Common
2018	$170,000	$170,000	$0
2019	$410,000	$251,900	$158,100
2020	$570,000	$251,900	$318,100

Part A(2) –

Dividends paid per share to preferred shares in 2020 = Dividend Paid to Preferred $251,900 / Number of Preferred Shares 55,000

= $4.58

Dividends paid per share to Common shares in 2020 = Dividend Paid to Common $318,100 / Number of Preferred Shares 90,000

= $3.53

Part B(1) – Preferred Shares are cumulative

Cumulative Preferred Dividend means the dividends to preferred shareholders are accumulated each year till the same is paid. Preferred shareholders have preference over common shareholders related to dividend payment. It means dividends are paid to preference shareholders first and then if balance left this will be paid to common shareholders.

	Dividend per Preferred Share	Number of Preferred Shares	Preferred Dividend
Annual Preference Dividend	$4.58	55000	$251,900
	Total Cash Dividend Paid	Paid to Preferred	Paid to Common	Preferred Dividends in Arrears at Year End
2018	$170,000	$170,000	$0	$81,900 ($251,900 – 170,000 paid)
2019	$410,000	$333,800 (Arrea 81,900 + 251,900)	$76,200	$0
2020	$570,000	$251,900	$318,100	$0

Part B(2) -

Dividends paid per share to preferred shares in 2020 = Dividend Paid to Preferred $251,900 / Number of Preferred Shares 55,000

= $4.58

Dividends paid per share to Common shares in 2020 = Dividend Paid to Common $318,100 / Number of Preferred Shares 90,000

= $3.53

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