Anders, Inc has 5,000 shares of 6%, €100 par value, cumulative preference shares and 20,000 ordinary shares with a $1 par value outstanding at December 31, 2014. There were no dividends declared in 2012. The board of directors declares and pays a €55,000 dividend in 2013 and in 2014. What is the amount of dividends received by the ordinary shareholders in 2014?

Question

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The preference shares are cumulative, which means that any dividends that are not paid in one year must be paid in a subsequent year before any dividends can be paid to the ordinary shareholders. In this case, the preference shareholders are entitled to a dividend of €30,000 (5,000 shares x €6 per share). This dividend was not paid in 2012, so it must be paid in 2013 before any dividends can be paid to the ordinary shareholders. In 2013, the board of directors declares and pays a dividend of €55,000. This dividend is first used to pay the preference shareholders their €30,000 dividend. The remaining €25,000 is then available to be paid to the ordinary shareholders.

Anders, Inc Has 5,000 Shares of 6%, €100 Par Value