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Assume that all of TKO's common and preferred stock is issued and outstanding. TKO has not...

Assume that all of TKO's common and preferred stock is issued and outstanding. TKO has not issued dividends in the last five (5) years. (Thus, there are five past years of unpaid dividends.) The company now has $8.2 million in surplus available for the issuance of dividends. The Board votes to issue the entire amount as dividends.


Assume that all of TKO's common and preferred stock is issued and outstanding. TKO has not issued dividends in the last five (5) years. (Thus, there are five past years of unpaid dividends.) The company now has $8.2 million in surplus available for the issuance of dividends. The Board votes to issue the entire amount as dividends.

How much of the surplus in total will the common shareholders together receive as dividends? You should provide the total sum of all of the dividends that will be paid to this class of shareholders.


The following facts apply to all of the questions:

TKO Sporting Goods, Inc. (“TKO”) is a New York corporation that was formed in January 2005. The TKO certificate of incorporation authorizes the issuance of 100,000 shares of no par value common stock, 100,000 shares of $100 par value 6% cumulative preferred stock, and 500,000 shares of non‐cumulative $9 no‐par preferred stock. The certificate of incorporation does not mention preemptive rights.

It is now January 2021, and Foreman owns 30,000 shares of the TKO common stock, Ali owns 10,000 shares and Norton owns 35,000 shares. There are no other common shareholders. TKO has no treasury stock.
Business   Accounting   
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Answer #1

Dividend in arrears for all 5 years will be paid only to cumulative share holders. Next the non cumulative no par value ptefernce get paid the dividend for the current year only. The balance if any will be paid to the common shareholders.

So,

Dividends Paid
$
Cumulative Preference Shareholders (100,000*100$*6%*5years) 3,000,000
Non cumulative no par preference shareholders (500,000*9$) 4,500,000
Balance to Common shareholders 700,000
Total Dividends 8,200,000

Hence based on above computation we get 700,000 dividend to common shareholders.

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