Question

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?

Answer 1

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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