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Exercise 15-6 Flounder Limited’s ledger shows the following balances on December 31, 2017: Preferred shares outstanding:...

Exercise 15-6 Flounder Limited’s ledger shows the following balances on December 31, 2017: Preferred shares outstanding: 27,000 shares $ 783,000 Common shares outstanding: 47,000 shares 3,337,000 Retained earnings 1,028,420 Partially correct answer. Your answer is partially correct. Try again. Assuming that the directors decide to declare total dividends in the amount of $514,210, determine how much each class of shares should receive if the preferred shares are cumulative and fully participating. Note that one year’s dividends are in arrears on the preferred shares, which pay a dividend of $2.03 per share. (Round Round intermediate percentage calculations to 4 decimal places, e.g. 12.2525% and final answers to 0 decimal places, e.g. 5,275.) Preferred Common Total Dividend $Entry field with incorrect answer 109620 $Entry field with incorrect answer 404590 $Entry field with correct answer 514210 LINK TO TEXT Correct answer. Your answer is correct. Assuming that the directors decide to declare total dividends in the amount of $514,210, determine how much each class of shares should receive if the preferred shares are non–cumulative and non–participating. Note that one year’s dividends are in arrears on the preferred shares, which pay a dividend of $2.03 per share. (Round answers to 0 decimal places, e.g. 5,275.) Preferred Common Total Dividend $Entry field with correct answer 54810 $Entry field with correct answer 459400 $Entry field with correct answer 514210 SHOW SOLUTION SHOW ANSWER LINK TO TEXT Correct answer. Your answer is correct. Assuming that the directors decide to declare total dividends in the amount of $514,210, determine how much each class of shares should receive if the preferred shares are non–cumulative and are participating in distributions in excess of a 11.00% dividend rate on the common shares. Note that one year’s dividends are in arrears on the preferred shares, which pay a dividend of $2.03 per share. (Round Round intermediate percentage calculations to 4 decimal places, e.g. 12.2525% and final answers to 0 decimal places, e.g. 5,275.) Preferred Common Total Dividend $Entry field with correct answer 72357 $Entry field with correct answer 441853 $Entry field with correct answer 514210

Solutions

Expert Solution

case 1: preferred shares are cumulative and fully participating:

Total dividend declared= 514210

less:Arrear preference dividend=2.03*27000=54810

less:current year preference dividend=54810

balance for equity shareholders=404590

the preference shareholders shall be paid the arrear dividend​ and the current year dividend totalling 109620

as they are cumulative and participating

Case 2: preferred shares are non–cumulative and non–participating

Total distributable profit=514210

in this case the arrear of dividends will not be taken into account but for the current year the preference shareholders will given a preference over the equity shreholders

hence preference dividend =2.03*27000=54810

and the balnce of 459400 shall be distibuted to equity shareholders

case 3:preferred shares are non–cumulative and are participating in distributions in excess of a 11.00% dividend rate on the common shares

total distributable profit = 514210

preference dividend of previous year shall not b paid as they are non cumulative but for current year preference dividend of 54810 shall be paid to them

balance profit=459400

115 dividend to equity shareholders shall be given first=11% of 3337000=367070

balance profit =459400-367070=92330 this shall be divided between prefernce and equity shareholders in the ratio of their face value =783000:3337000 so pref will receive 17547 and equity will receive 74783


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