Question

# The following is the shareholders’ equity section of Ayayai Corp. at December 31, 2020: Preferred shares,a...

The following is the shareholders’ equity section of Ayayai Corp. at December 31, 2020:

 Preferred shares,a authorized 100,000 shares; issued 33,000 shares \$ 1,155,000 Common shares (unlimited authorized, 51,000 issued) 1,275,000 Contributed surplus 107,000 Total paid-in capital 2,537,000 Retained earnings 2,962,600 Total shareholders’ equity \$ 5,499,600

a The preferred shares have a \$2 dividend rate, are cumulative, and participate in distributions in excess of a \$3 dividend on the common shares.

Q. No dividends were paid in 2018 or 2019. On December 31, 2020, Ayayai wants to pay a cash dividend of \$5 per share to common shareholders. How much cash would be needed for the total amount to be paid to preferred and common shareholders?

Solution :

• Total Dividend on Common Shares

= No. of Common Shares * Dividend per Common share

= 51,000 * 5

= \$2,55,000

• Total Dividend on Preferred Shares

= No. of Preferred Shares * Dividend per Preferred Share

= 33,000 * [ 2 + (5 - 3 ) ]

= \$1,32,000

• Total Cash needed for Dividend Payment

= Total Dividend on Common Shares - Total Dividend on Preferred Shares

= \$2,55,000 - \$1,32,000

= \$1,23,000

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