Outstanding shares of the Colt Corporation included 20,000 ordinary shares with a $5 par and 5,000 shares of 5%, $10 par noncumulative preference shares.In 2010, Colt declared and paid dividends of $2,000.In 2011, Colt declared and paid dividends of $6,000.How much of the 2011 dividend was distributed to preference shareholders?

Question

Quizplus · Accepted Answer

The preference shareholders are entitled to a 5% dividend on their $10 par value shares. With 5,000 preference shares, the annual dividend is 5,000 x $10 x 5% = $2,500. Since the preference shares are noncumulative, they do not receive any unpaid dividends from previous years. Therefore, in 2011, they receive $2,500.

Outstanding Shares of the Colt Corporation Included 20,000 Ordinary Shares