Question

            Use the following information to answer questions 1 and 2.

            This is the shareholders’ equity of Pinnacle on Dec 31, 2016.

• Common share (200,000 issued and outstanding)                                    $   800,000
• 7 percent, preferred shares (20,000 authorized, 18,000 issued)                    200,000
• Retained earnings                                                                                          650,000
• Total                                                                                                          $ 1,650,000

Notes:

1. Preferred shares were issued on Jan 1, 2013.
2. No dividends declared or paid since 2013 until Pinnacle declared and paid $400,000 dividends on Dec 31, 2016.

1. Assuming preferred shares are both cumulative and participating in dividend distributions in excess of a 10 percent dividend rate on the common shares, what was the total dividend that preferred and common shareholders received, respectively on Dec 31, 2016?
2. Assuming preferred shares are none cumulative, but participating in dividend distributions in excess of a 20 percent dividend rate on the common shares, what were the total dividends that preferred and common shareholders received, respectively on Dec 31, 2016?

Answer 1

	in $
Ans a
Preferred share are cumulative
200000*7%*4 years	56000
Common shareholder received 800000*10%	80000
Remaining amount is 400000-56000-80000	264000
So the proportion distributed is
For preferred stock
264000/(800000+200000)*200000	52800
For common stock
264000/(800000+200000)*800000	211200
			Total Dividend
Preferred stock	56000	52800	108800
Common stock	80000	211200	291200
ans b
Preferred share are non cumulative
200000*7%	14000
Common shareholder received 800000*10%	80000
Remaining amount is 400000-14000-80000	306000
So the proportion distributed is
For preferred stock
306000/(800000+200000)*200000	61200
For common stock
306000/(800000+200000)*800000	244800
			Total Dividend
Preferred stock	14000	61200	75200
Common stock	80000	244800	324800
If any doubt please comment