Question

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Sheridan, Ltd. has 8,000 outstanding no par value $1.00 preferred shares issued for $80,000 and 37,000 outstanding no par value common shares issued for $22,200.

No dividends were paid or declared during 2020 and 2021. Sheridan wants to distribute $44,616 in dividends on December 31, 2022.

a) Calculate the amount of dividends to be paid to each group of shareholders (i.e., preferred and common), assuming the preferred shares are non-cumulative and non-participating.

		Preferred		Common
Total dividends		$		$

b) Calculate the amount of dividends to be paid to each group of shareholders (i.e., preferred and common), assuming the preferred shares are cumulative and non-participating.

		Preferred		Common
Total dividends		$		$

c) Calculate the amount of dividends to be paid to each group of shareholders (i.e., preferred and common), assuming the preferred shares are cumulative and fully participating.

		Preferred		Common
Total dividends		$		$

Answer 1

a) Preferred share are non-cumulative and non-participative:

Current year Preferred dividend [8,000 shares x $1.00]	$8,000
Balance to Common stockholders [$44,616 - $8,000]	$36,616

.

	Preferred	Common
Total dividends	$8,000	$36,616

b) Preferred share are cumulative and non-participative:

Current year Preferred dividend [8,000 shares x $1.00]	$8,000
Arrears in preferred dividends [$8,000 x 2 years]	$16,000
Total Dividend for preferred shareholders		$24,000
Balance to common shareholders [$44,616 - $24,000]		$20,616

	Preferred	Common
Total dividends	$24,000	$20,616

c) Preferred share are cumulative and fully participative

Current year Preferred dividend [8,000 shares x $1.00]	$8,000
Arrears in preferred dividends [$8,000 x 2 years]	$16,000
Preferred dividend share in Balance [$44,616-$24,000] x $80,000/$102,200	$16,138
Total Dividend for preferred shareholders		$40,138
Balance to common shareholders [$44,616 - $40,138]		$4,478

	Preferred	Common
Total dividends	$40,138	$4,478