Question

Preferred shares,a authorized 100,000 shares; issued 33,000 shares \$ 1,155,000 Common shares (unlimited authorized, 51,000 issued)...

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 Explanation : 1. NO. OF PREFERRED SHARES: 33,000 2. DIVIDEND PER PREFERRED SHARE: \$2 + EXCESS OF \$3 ON COMMON SHARES 3. NO. OF COMMON SHARES: 51,000 4. DIVIDEND PER COMMON SHARE: \$5 ANSWER: TOTAL DIVIDEND ON COMMON SHARES = 51000 x \$5 = \$255,000 TOTAL DIVIDEND ON PREFERRED SHARES = 33,000 x \$4 [\$2 + (\$5-\$3)] = \$ 132,000 TOTAL CASH NEEDED FOR DIVIDEND PAYMENT = \$ 255,000 + \$ 132,000 = \$ 387,000

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