Dividends on Preferred Shares

question 54

Essay

Dividends on preferred shares
In each of the following independent cases, it is assumed that the corporation has outstanding 20,000, $ 0.80, preferred shares, with a carrying value of $ 200,000, and 80,000 common shares, with a carrying value of $ 800,000. Although dividends have been paid regularly up to 2017, no dividends were declared in 2018 or 2019.
1. At December 31, 2020, the board of directors wants to distribute $ 125,000 in dividends. How much will the preferred shareholders receive if their shares are cumulative and non-participating?
2. At December 31, 2020, the board of directors wants to distribute $ 200,000 in dividends. How much will the preferred shareholders receive if their shares are cumulative and participating up to 15% in total?
3. On December 31, 2020, the preferred shareholders received an $ 80,000 dividend on their shares, which are cumulative and fully participating. How much money was distributed in total for dividends?

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Definitions:

Activity-Based Costing

A cost accounting approach that assigns costs to products or services based on the activities involved in their production.

Processing Costs

Expenses incurred in the process of turning raw materials into finished products, including labor and overhead.

Equipment Depreciation

The allocation of the cost of tangible assets over its useful life, reflecting wear and tear, obsolescence, or permanent decline in value.

Supervisory Expense

Costs associated with salaries and benefits for supervisory personnel overseeing production or services.