Stinson Corporation has 6% participating preferred shares. In 2018 the company pays common shareholders dividends that are 10% of common par value. What, if any, additional dividend will preferred shareholders receive?

Question

Quizplus · Accepted Answer

Participating preferred shares allow preferred shareholders to receive their fixed dividend rate (6% in this case) and then participate in additional dividends paid to common shareholders. Since common shareholders received a 10% dividend, preferred shareholders will receive an additional 4% to match the common dividend rate.

Stinson Corporation Has 6% Participating Preferred Shares