Question

1. As of December 31, 2020, the Russell Corporation has

10,000 shares ($100 PAR) 10% preferred stockissued and outstanding

20,000 shares of common stock ($10 par value) issued and outstanding

Dividends for 2018 and 2019 have NOT been paid – THEREFORE THERE ARE TWO YEARS OFF DIVIDENDS IN ARREARS ON THE PREFERRED STOCK.

At December 31, 2020, Russell Corp. declares total cash dividends of $500,000 to be paid to both the preferred stockholders and the common stockholders.  Fill in the table below to indicate the amount of cash that will be distributed to both the preferred stockholders and the common stockholders, on December 31, 2020, under each of the independentsituations

	Distributed to preferred stockholders	Distributed to common stockholders
Preferred stock is NON cumulative and NON participating
Preferred stock is cumulative and NON participating

Answer 1

In Cummulative preference shares, the company have to pay all the dividend it has not paid in past.Whereas in non cumulative shares , the dividend not paid in past will be terminated and company is not required to pay it in future.

so, in first situation , company have non cumulative preference shareholders.

$500000 dividend will be distributed to preference shareholders as follows:

$10000*100*10%=$100000

For year 2020, remaining amount is $400000

In 2nd situation, preference shareholders are cumulative , hence past dividend will also be paid.

Accordingly,

Distributed to preferred stockholders Distributed to common stockholders

Preferred stock is NON $100000 $400000

cumulative and NON participating

Preferred stock is cumulative and $300000 $200000

NON participating