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Dividend splitting between Preferred and Common Shares C/S 1,000,000 shares of $2 par; APIC- C/S =...

Dividend splitting between Preferred and Common Shares

C/S 1,000,000 shares of $2 par; APIC- C/S = $20,000,000

P/S 100,000 shares of 5%, $30 par; APIC- P/S = $5,000,000

R/E (Yr 1) = $1,600,000

R/E (Yr 2) = $1,800,000

Dividends paid for Yr 1 are $ - 0 - and dividends for Yr 2 are $ 800,000.

Determine the proper split of dividends for YR 1 and YR 2 if:

a. P/S is non-cumulative and non-participating

b. P/S is cumulative and non-participating

c. P/S is non-cumulative and participating

d. P/S is cumulative and participating

Expert Solution

A. P/S is non-cumulative and non-participating -

- As the Preference shareholders are non-cumulating, they will not receive any dividend for year 1, and they are also non-participating than we cannot distribute any extra dividend to them.

Particulars	Year1	Year2
Dividend	Nil	$150000
		(100000305%)

B. P/S is Cumulative and Non-participating -

- Cumulative Pref sh. holder will receive the dividend of year1 and year2 in year2. because of their cumulative nature. At the same time, they wiil not participate in extra dividend because of their non participating nature.

Particulars	Year1	Year2
Dividend	Nil	$300000
		(100000305%)2years

C. P/S is non-cumulating and participating -

No dividend will be given to pref sh. holder in year1 because they are non-cumulative in nature. Also the participating pref. sh. holders will receive the extra surplus profit of the company upto a certain limit, so we will assume that extra $200000 (Retained earning of Year2 $1800000 - Retained Earning of Year1 $1600000) will we paid to participating pref. sh. holders because no limit has been given in the question.

Particulars	Year1	Year2
Dividend	Nil	$150000
		(100000305%)
Surplus Profit	Nil	$200000 (as mentioned above)
Total	Nil	$450000

D. P/S is Cumulative and Participating -

They wiil receive dividend of both the years in year 2 also surplus profit will be given to them upto a certain limit.

Particulars	Year1	Year2
Dividend	Nil	$300000
		(100000305%)2years
Surplus Profit	Nil	$200000 (as mentioned above)
Total	Nil	$500000

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