XYZ Company has 500,000 common shares outstanding and 50,000,$4,cumulative,participating preferred shares outstanding.Preferred shareholders receive dividends once the common shareholders have received $2 per share.No dividends were declared last year; however,$2,000,000 in dividends were declared this year.How much of the dividend amount is allocated to preferred shareholders?

Question

Quizplus · Accepted Answer

The preferred shareholders are entitled to $4 per share annually. Since no dividends were paid last year, they are owed $8 per share this year (cumulative). This amounts to $400,000 (50,000 shares x $8). After common shareholders receive $2 per share ($1,000,000), the remaining $600,000 is shared equally between common and preferred shareholders (participating), giving an additional $100,000 to preferred shareholders. Total for preferred: $400,000 + $100,000 = $500,000.

XYZ Company Has 500,000 Common Shares Outstanding and 50,000,$4,cumulative,participating Preferred