Suivant SA’s ledger shows the following balances on December 31, 2019Share Capital, Preference, 5% $10 par value, outstanding 20,000 shares $200,000Share Capital Ordinary $100 par value, outstanding 30,000 shares $3,000,000 Retained earnings $630,000InstructionsAssuming that the directors decide to declare total dividends in the amount of $266,000, determine how much each class of shares should receive under each od this condition stated below. One year’s dividends are in arrears on the preference shares.The preference shares are cumulative and fully participating The preference shares are non-cumulative and non- participating.

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Asked Aug 12, 2019
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Suivant SA’s ledger shows the following balances on December 31, 2019
Share Capital, Preference, 5% $10 par value, outstanding 20,000 shares $200,000
Share Capital Ordinary $100 par value, outstanding 30,000 shares $3,000,000
Retained earnings $630,000
Instructions
Assuming that the directors decide to declare total dividends in the amount of $266,000, determine how much each class of shares should receive under each od this condition stated below. One year’s dividends are in arrears on the preference shares.
The preference shares are cumulative and fully participating
The preference shares are non-cumulative and non- participating.

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Expert Answer

Step 1

Dividend of each class of shares:

 

Under Condition 1: One year’s dividends are in arrears on preference shares

 

The preference shares are cumulative and fully participating:

Computation of cumulative dividend:

 

Thus, the total cumulative dividend on preference stock is $20,000.

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For the past one year Preference dividend = Par valuex Number of shares x Ratex Number of years =$10x 20,000x5%x1 $10,000 For the current year: Preference dividend Par valuex Number of shares x Rate $10x 20,000x 5% $10, 000 Computation of total cumulative dividend: Total cumulative dividend Preference dividend for one year + Curent year Preference dividend $10,000 $10,000 $20,000

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Step 2

Thus, the total dividend to common stoc...

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Computation of dividend to common stock: Common stock dividend (Total dividend paid - Cumulative preference dividend) $266,000-$20, 000 $246,000

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